EXERCISE 5-8 Compute the Margin of Safety LO5-7 Molander Corporation is a distributor of a...
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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 per unit Variable expense per unit $20 Fixed expense per month $7,500 Unit sales per month $30 1,000 Required 1. What is the company's margin of safety? 2. What is the company's margin of safety as a percentage of its sales? EXERCISE 5-9 Compute and Use the Degree of Operating Leverage LO5-8 Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows Sales Variable expenses Contribution margin 48,000 Fixed expenses Net operating income $10,000 Amount Percent of Sales $80,000 32,000 100% 0% 60% 38,000 Required 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase in sales 3. Verify your estimate from part (2) above by constructing a new contribution format income statement for the company assuming a 5% increase in sales
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