Course: 18FALL ACCT21x Hmwk CVP C O Not secure ezto.mheducation.com/hm.tpx 16. v

Question

Course: 18FALL ACCT21x Hmwk CVP C O Not secure ezto.mheducation.com/hm.tpx 16. value 1.00 points Exercise 5-8 Compute the Margin of Safety [LO5-7 Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below Selling price Variable expenses Fixed expenses Unit sales $29 per unit $18 per unit $9,680 per month 1,030 units per month Required 1. Compute the company's margin of safety (Do not round intermediate calculations.) argin of safety 2. Compute the company's margin of safety as a percentage of its sales Round your percentage ans to 2 decimal places (i.e 1234 should be entered as 12.34), Margin of safety

Explanation / Answer

Answer to Part 1:

Margin of Safety = Current Sales – Break Even Sales
Current Units Sold = 1,030 per month
Current Sales (in Dollar) = 1,030 * $29
Current Sales (in Dollar) = $29,870

Break Even Sales (in Units) = Fixed Cost / Contribution Margin per Unit
Contribution Margin per Unit = Selling Price per Unit – Variable Expense per Unit
Contribution Margin per Unit = $29 - $18 = $11

Break Even Sales (in Units) = 9,680 / 11
Break Even Sales (in Units) = 880 Units

Break Even Sales (in Dollars) = 880 Units * $29
Break Even Sales (in Dollars) = $25,520

Margin of Safety = $29,870 - $25,520
Margin of Safety = $4,350

Answer to Part 2:

Margin of Safety (in %) = (Current Sales – Break Even Sales) / Current Sales * 100
Margin of Safety (in %) = ($29,870 - $25,520) / $25,520 * 100
Margin of Safety (in %) = 17.05%

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