Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below.
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 (ie. .1234 should be entered as 12.34).)
1 | Margin of safety (in dollars) | $ 3,750 | |
2 | Margin of safety percentage | 15.00 | % |
Working:
Break-even sales (in dollars) = Fixed costs/Contribution margin ratio
Contribution margin ratio = (Selling price - Variable costs)/Selling price = ($25 - $14)/$25 = $11/$25 = 44%
Break-even sales (in dollars) = $9350/44% = $21250
Actual sales (1000 x $25) | 25000 |
Break-even sales | 21250 |
Margin of safety (in dollars) | 3750 |
Margin of safety percentage = Margin of safety (in dollars)/Actual sales = $3750/$25000 = 15%
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