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 \$ 25 Variable expense per unit \$ 12 Fixed expense per month \$ 11,570 Unit sales per month 1,040

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 = Current sales - Break even sales

Current sales = 1040 units * \$25

= \$26000

Break even point in units = Fixed cost / contribution margin per unit

Contribution margin per unit = Selling price - variable expenses

= \$25 - \$12

= \$13

Break even point in units = \$11570/ \$13

= 890 units

Break even point in sales dollar = 890 units * \$25

= \$22250

Margin of safety = \$26000- \$22250

= \$3750

2.)

Contribution margin per unit = Selling price per unit - Variable expense per unit

= \$25 - \$12

= \$13

Break-even units = Fixed expense / Contribution margin per unit

= \$11570/ \$13 = 890

Margin of safety = Sales - Break even sales

= 1040 - 890

= 150

Margin of safety as a percentage of sales = Maragin of safety / Sales * 100

= 150 / 1040 * 100

= 14.42%

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