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 $ $ 7,740 1,010 17 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

Answer:

Question-1.

Particulars Sales Variable expense Contribution margin Fixed expense Per unit $ 26 $ 17 $ 9 $ 7,740 Percentage 100.00% 65.38% 34.62% Breakeven sale = Fixed cost / Contribution margin ratio Breakeven sale = $ 7,740 / 34.62% = $ 22,360 Actual sale = Sales unit x selling price per unit Actual sale = 1,010 x $ 26 = $ 26,260 Margin of safety Margin of safety Margin of safety = Actual sales - Breakeven sales = $ 26,260 - $ 22,360 = $3,900 Margin of safety ratio Margin of safety ratio Margin of safety ratio = (Margin of safety / Actual sales) x 100 = ($3,900 / $ 26,260) x 100 = 14.85% $ 1. Margin of safety (in dollars) 2. Margin of safety percentage 3,900 14.85%

Question-2

Percentage 100% (133000 + (133000x24%)] 40% Particulars Sales Variable expenses Contribution margin Fixed expense Net operating income Per unit $ 133,000 $ 53,200 $ 79,800 $ 17,000 $ 62,800 60% Degree of Operating leverage = Contribution margin / Operating income Degree of Operating leverage = $ 79,800 / $ 62,800 Degree of Operating leverage = 1.27 1. Degree of Operating leverage 1.27 2. Impact on net operating income, if sales increase by 24% Degree of operating leverage = % change in operating income / % change in sales 1.27 = % change in operating income / 24% % change in operating income = 1.27 x 24% % change in operating income = 30.48% Net operating income Increase by 30.48% 3. Engberg Company Contribution income statement Particulars Amount Percent of sale Sales $ 164,920 100% (133000 + (133000x24%)] Variable expenses $ 65,968 40% (164920 x 40%] Contribution margin $ 98,952 60%(164920-65968] Fixed expense $ 17,000 Net operating income $ 81,952 [98952-17000]