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7 October, 03:14

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 $ 29 Variable expense per unit $ 14 Fixed expense per month $ 12,450 Unit sales per month 980 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. 0.1234 should be entered as 12.34).)

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  1. 7 October, 05:35
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    a) $4,350 b) 15.31%

    Explanation:

    a) Units sold per month = 980

    Unit selling price = $29

    Variable cost per unit = $14

    Monthly fixed cost = $12,450

    The formula for Margin of safety

    = Actual sales - Break-even sales

    Total monthly sales = 980 * $29 = $28,420

    Break-Even sales (units) = FC / (SP - VC) FC = Fixed cost

    = $12,450 / (29-14) SP - Selling price

    = $12,450 / 15 VC = Variable cost

    = 830 units

    Break-even sales in $ = 830 * $29 = $24,070

    Margin of safety = Actual sales - Break-even sales

    = $ 28,420 - $24,070

    = $ 4,350

    b) Margin of safety as a % of sales

    = ($ 4,350 / $ 28,420) * 100

    = 15.31%
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