Molander Corporation is a distributor of a sun umbrella used at resort hotels. D

Question

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 month $24 $ 18 $ 5,280 1,030 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

1. Break Even Sales = Fixed Cost / ( Sales Price Per Unit - Variable Cost Per Unit)

= $ 5,280 / ( $ 24 - $ 18)

= 880 Units

Break Even Sales in Dollars = Break Even Sales in Units * Selling Price Per Unit

= 880 Units * $ 24

= $ 21,120

Margin of Safety ( Dollars) = Actual Sales - Break Even Sales

= ( Units Sold * Selling Price Per Unit ) - $ 21,120

= ( 1,030 * $ 24) - $ 21,120

= $ 24,720 - $ 21,120

= $ 3,600

Hence the correct answer is $ 3,600

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2. Margin of Safety ( Percentage)= (Actual Sales - Break Even Sales) / Actual Sales *100

= $ 3,600 / $ 24,720*100

= 14.56%

Hence the correct answer is 14.56%

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