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19 November, 09:39

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

Selling price $27 per unit

Variable expenses $16 per unit

Fixed expenses $8,910 per month

Unit sales 960 units per month

Requirement 1:

Compute the company's margin of safety. (Omit the "$" sign in your response.)

Margin of safety $

Requirement 2:

Compute the company's margin of safety as a percentage of its sales. (Round your answer to the nearest whole percent. Omit the "%" sign in your response.)

Margin of safety as a percentage of sales %

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Answers (1)
  1. 19 November, 10:01
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    Margin of safety = $4,050

    Margin of safety as a percentage of sales % = 15.625

    Explanation:

    Requirement 1:

    Selling Price = 27

    Variable cost = 16

    Contribution per unit = $27 - $16

    = $11

    Fixed cost = $8,910

    Break even sales:

    = (Fixed cost : Contribution per unit) : Selling price per unit

    = (8,910 : 11) * 27

    = 21,870

    Expected Sales = Units sold per month * Selling price per unit

    = 960 * 27

    = 25,920

    Margin of safety = Expected Sales - Break even sales

    = 25,920 - 21,870

    = 4,050

    Margin of safety = $4,050

    Requirement 2:

    Margin of safety ratio = (Margin of Safety : Expected sales) * 100

    = (4,050 : 25,920) * 100

    = 15.625

    Margin of safety as a percentage of sales % = 15.625
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