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

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	$	26
Variable expense per unit	$	18
Fixed expense per month	$	6,880
Unit sales per month		1,010

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).)

Explanation

1.

To compute the margin of safety, we must first compute the break-even unit sales.

Profit	=	Unit CM × Q − Fixed expenses
$0	=	($26 − $18) × Q − $6,880
$0	=	($8) × Q − $6,880
$8Q	=	$6,880
Q	=	$6,880 ÷ $8
Q	=	860 units; or, at $26 per unit, $22,360

Sales (at the budgeted volume of 1,010 units)	$	26,260
Less break-even sales (at 860 units)		22,360
Margin of safety (in dollars)	$	3,900

2.

The margin of safety as a percentage of sales is as follows:

Margin of safety (in dollars) (a)	$	3,900
Sales (b)	$	26,260
Margin of safety percentage (a) ÷ (b)		14.85	%

Thanks