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 $ 29 Variable expense per unit $ 18 Fixed expense per month $ 8,800 Unit sales per month 950 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 12.34).)

Answer 1

Answer:

Margin of safety= 150 units

Margin of safety ratio= 15.9%

Explanation:

Giving the following information:

Selling price per unit $29

Variable expense per unit $18

Fixed expense per month $8,800

Unit sales per month 950

To calculate the margin of safety both in units and as a percentage of sales, first, we need to calculate the break-even point in units.

Break-even point= fixed costs/ contribution margin

Break-even point= 8,800/ (29 - 18)= 800 units

Now, we can calculate the margin of safety in units:

Margin of safety= (current sales level - break-even point)

Margin of safety= (950 - 800)= 150 units

As a percentage of sales:

Margin of safety ratio= (current sales level - break-even point)/current sales level

Margin of safety ratio= 150/950= 0.159= 15.9%

Answer 2

Answer:

MOS (in units)   = 150 units

MOS ( in %) = 15.79%

Explanation:

Margin of safety (MOS) determines the amount by which expected sales exceeds the break-even point (BEP).

MOS can be calculated as follows:

MOS (units) = Budgeted sales - BEP

BEP= Fixed cost for the period / contribution per unit

Contribution per unit =  Selling price - variable cost per unit

Contribution per unit = $29 - $18 =

                      =$ 11

BEP (units) = 8,800/ 11 = 800

MOS (in units) = 950 - 800 = 150 units

 MOS (in units)      = 150 units

2)  Margin of Safety as a %

(150/950 ) × 100= 15.79%

MOS( in %) = 15.79%