apter 5 Saved He Exercise 5-8 Compute the Margin of Safety [LOS-7) Molander Corp

Question

apter 5 Saved He Exercise 5-8 Compute the Margin of Safety [LOS-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 Pixed expense per month Unit sales per month $ 2 5 14 11,700 ,050 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 (in dollars) 2 Margin of safety percentage MacBook Air

Explanation / Answer

Solution: 1. Margin of safety (in dollars) = $4,050 2. Margin of safety % = 14.29 % Working Notes: Contribution margin per unit = Selling price per unit - Variable cost per unit =$27 - $14 =$13 Break even units = Fixed cost/ Contribution margin per unit =$11,700/$13 =900 units Margin of safety in units = total budgeted units - Break even units =1,050 - 900 =150 units Margin of safety (in dollars) = Margin of safety in units x Selling price per unit =150 x $27 =$4,050 Margin of safety (%) = Margin of safety in dollars/Total budgeted sales =$4,050/(budgeted sales in units x selling price per unit) =$4,050/(1,050 x 27) =$4,050/$28,350 =0.142857 =14.29% Please feel free to ask if anything about above solution in comment section of the question.

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