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 $24 per unit $17 per unit $6,160 per month 1,030 units per Variable expenses Fixed expenses Unit sales month Required: 1. Compute the company's margin of safety. (Do not round Intermediate calculations.) argin n 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). Margin o safety

Explanation / Answer

Requirement (1) - Company’s Margin of Safety

Margin of Safety = Actual Sales – Break Even Sales

Break Even Sales = Fixed Costs / Contribution Ratio

Contribution Ratio = [(Selling price per unit - Variable cost per unit) / Selling price per unit] x 100

= [($24 - 17) / 24] x 100

= 29.17%

Actual Sales = 1,030 Units x $24 = $24,720

Break Even Sales = Fixed Costs / Contribution Margin Ratio

= $6,160 / 0.2917

= $21,120

Therefore, Margin of Safety = Actual Sales – Break Even Sales

= $24,720 – 21,120

= $3,600

“Company’s Margin of Safety = $3,600”

Requirement (2) - Company’s Margin of Safety as a percentage of it’s sales

= [Margin of safety / Actual Sales] x 100

= [$3,600 / 24,720] x 100

= 14.56%

“Company’s Margin of Safety as a percentage of it’s sales = 14.56%”

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