Serendipity Sound, Inc. manufactures and sells compact discs. Price and cost data are as follows:
Seiling price per unit (package of two CDs) | $25 00 |
Variable costs per unit: | |
Direct material | $10.50 |
Direct labor | 5.00 |
Manufacturing overhead | 3.00 |
Selling expenses | 1.30 |
Total variable costs per unit | $ 19.80 |
Annual fixed costs: | |
Manufacturing overhead | $ 192,000 |
Selling and administrative | 276,000 |
Total fixed costs | $ 468,000 |
Fore casted annual sales volume (120,000 units) | $ 3,000,000 |
In the following requirements, ignore income taxes.
Required:
l. What is Serendipity Sound’s break-even point in units?
2. What is the company’s break-even point in sales dollars?
3. How many units would Serendipity Sound have to sell in order to earn $ 260,000?
4. What is the firm’s margin of safety?
5. Management estimates that direct-labor costs will increase by 8 percent next year. How many units will the company have to sell next year to reach its break-even point?
6. If the company’s direct-labor costs do increase by 8 percent, what selling price per unit of product must it charge to maintain the same contribution-margin ratio?
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