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 $ 29 variable expense per unit $ 14 fixed expense per month $ 12,450 unit sales per month 980 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. 0.1234 should be entered as 12.

a) $4,350            b) 15.31%

Explanation:

a)Units sold per month = 980

Unit selling price = $29

Variable cost per unit = $14

Monthly fixed cost= $12,450

The formula for Margin of safety

   = Actual sales –Break-even sales

Total monthly sales = 980 * $29 = $28,420

Break-Even sales (units) = FC / (SP- VC)              FC = Fixed cost

                   = $12,450/ (29-14)                               SP - Selling price

                        = $12,450 / 15                                 VC = Variable cost

                        = 830 units

Break-even sales in $ = 830 * $29 = $24,070

            Margin of safety = Actual sales –Break-even sales

                                      = $ 28,420 - $24,070

                                      = $ 4,350

b) Margin of safety as a % of sales

              =    ($ 4,350 / $ 28,420) * 100

                 = 15.31%

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