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 $18 per unit Fixed expenses $5,950 per month Unit sales 1,000 units per month 1. Compute the company’s margin of safety. (Do not round intermediate calculations.) 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. To compute margin safty, you must compute the break-even unit sales, following:

Sales= Variable expenses + Fixed expenses + Profits

25x = 18x + 5950 + 0

x= 850 units.

So:

Sales (volume of 1000 units) = (25*1000) = 25000

Break-even sales (volume 850 units) = (25*850) = 21250

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Margin safty = 25000-21250 = 3750$

2. As a percentage

3750 (break-even sales) / 25000 (sales in one month) = 0.15*100= 15%

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