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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%
