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 per unit Variable expense per unit Fixed expense per month Unit sales per month $29 $ 14 $12,300 970 Required 1. What is the company's margin of safety? (Do not round intermediate calculations.) 2. What is 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).) 1. Margin of safety (in dollars) 2. Margin of safety percentage

Explanation / Answer

Answer 1.

Selling Price per unit = $29
Variable Expense per unit = $14

Contribution Margin Ratio = (Selling Price per unit - Variable Expense per unit) / Selling Price
Contribution Margin Ratio = ($29 - $14) / $29
Contribution Margin Ratio = 0.5172

Break-even Point in Sales dollar = Fixed Expenses / Contribution Margin Ratio
Break-even Point in Sales dollar = $12,300 / 0.5172
Break-even Point in Sales dollar = $23,780

Sales Revenue = Selling Price per unit * Unit sales per month
Sales Revenue = $29 * 970
Sales Revenue = $28,130

Margin of Safety in dollars = Sales Revenue - Break-even Point in Sales dollar
Margin of Safety in dollars = $28,130 - $23,780
Margin of Safety in dollars = $4,350

Answer 2.

Margin of Safety Percentage = Margin of Safety in dollars / Sales Revenue
Margin of Safety Percentage = $4,350 / $28,130
Margin of Safety Percentage = 15.46%

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