Question & Answer: Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below: Required: Comp…..

Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next months budget appear below: Selling price Variable expenses Fixed expenses Unit sales S24 per unit $17 per unit $6,090 per month 1,020 units per month Required: 1. Compute the companys margin of safety. (Do not round intermediate calculations.) Margin of safety 2. Compute the companys 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) Margin of safety

Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month’s budget appear below: Required: Compute the company’s margin of safety. (Do not round intermediate calculations.) Compute 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).

Expert Answer

 

Break Even Sales = Fixed Expenses / ( Contribution Margin Per Unit)

= Fixed Expenses / ( Sales Per Unit – Variable Cost Per Unit)

= $ 6,090/ ( $ 24 – $ 17)

= 870

Actual Sales = 1,020 Units

Hence, Margin of Safety = Actual Sales – Breakeven Sales

= 1,020 Units – 870 Units

= 150 Units

Value of Margin of safety = 150 Units * Selling Price Per unit

= 150 * $ 24

= $ 3,600

Hence the correct answer is 150 Units or $ 3,600

Hence, Margin of Safety (%) = (Actual Sales – Breakeven Sales)/ Actual Sales *100

= ( 1,020 Units – 870 Units) / 1,020 *100

= 14.71%

Hence, the correct answer is 14.71%

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