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 per unit Variable expense per unit Fixed expense per month Unit sales per month $ 26 $ 15 $ 9,790 1,040 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

Answer 1

1) Break even unit = Fixed cost/Contribution margin per unit = 9790/26-15 = 890 Unit

Margin of safety ($) = 1040-890*26 = $3900

Margin of safety (%) = (1040-890)/1040 = 14.42%

2a) Degree of operating leverage = Contribution margin/Net income = 89400/70400 = 1.27

2b) Net income increase by = 1.27*28 = 35.56%

2c) Contribution margin income statement

	Total	Unit
Sales	190720	100%
Variable cost	76288	40%
Contribution margin	114432	60%
Fixed cost	19000
Net income	95432