Molander Corporation is a distributor of a sun umbrella used at resort hotels. D

Question

Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month’s budget appear below:

            
Selling price      $25   per unit
Variable expenses      $12   per unit
Fixed expenses      $11,440   per month
Unit sales      1,030   units per month

Required:
1.   Compute the company’s margin of safety.
      
  
  
2.  
Compute the company’s margin of safety as a percentage of its sales. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).
      

Explanation / Answer

1. Breakeven sales in units = fixed cost/contribution per unit

where, contribution per unit = Sales price per unit - Variable cost

= $25- $12 = $13

Breakeven sales in unit = $11440/$13

= 880 units

Margin of safety = Total sales- Breakeven sales

= 1030-880

= 150 units

2. Margin of safety in % = Margin of safety/total sales *100

= 150/1030 * 100

= 14.56%

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