Exercise 6-8 Compute the Margin of Safety [LO6-7 Molander Corporation is a distr

Question

Exercise 6-8 Compute the Margin of Safety [LO6-7 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 Variable expense per unit Fixed expense per month Unit sales per nonth $23 $ 13 s 8,700 1,020 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).) 1. Margin of safety (in dollars) 2. Margin of safety percentage

Explanation / Answer

Contribution margin ratio= Contribution÷Sales

= = ($23-$13)/$23

= 43.48%

Breakeven in dollars = Fixed costs÷Contribution margin ratio

= $8,700/43.48%

= $20,010

Margin of safety in dollars = Total sales-BEP sales

= 1,020×$23-$20,010

= $3,450

Margin of safety in percentage:

= $3,450/(1,020×$23)

= 14.71%

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