Question

# Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the...

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 \$ 23 Variable expense per unit \$ 15 Fixed expense per month \$ 6,800 Unit sales per month 1,000

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).)

1. Margin of safety

Margin of safety (dollars) = Profit / Contribution margin ratio

Contribution margin ratio = Contribution margin per unit / Selling price per unit

= 8 / 23 = 34.78%

Margin of safety (dollars) = \$1,200 / 34.78%

=\$3,450

2. Margin of safety ratio (%) = (Margin of safety / Actual sales) *100

= (3,450/ 23,000) * 100

= 15.00%

Explanation

 Calculation of Profit \$ Sales (23*1,000) 23,000.00 Less: Variable cost (15*1,000) 15,000.00 Contribution Margin 8,000.00 Less: Fixed cost 6,800.00 Profit 1,200.00

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