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 $ 30 Variable expense per unit $ 20 Fixed expense per month $ 7,500 Unit sales per month 1,000 Required: 1. What is the company's margin of safety? 2. What is the company's margin of safety as a percentage of its sales?

margin of safety with respect to its sales is 31.81%

Explanation:

Compute the company's margin of safety.

Selling Price = &30

Variable cost = &20

Contribution per unit = $30 - $20 = $10

Fixed cost = $7500

Break even sales = (Fixed cost : Contribution per unit) x Selling price per unit

= (7500: 11) x 30

= 20454.54

Expected Sales = 1000 x 30 = 30000

Margin of safety = Expected Sales - Break even sales

= 30000 - 20454.54

= 9545.45

so, Margin of safety is $9545.45

Now determine company's margin of safety with respect to its sales

Margin of safety proportion is given as = (Margin of Safety : Expected sales) x 100

= (9545.45 : 30000) x 100

= 31.81 %