Exercise 7-40 Margin of Safety Objective 5 Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $8.12 per string. The variable costs per string are as follows: Direct materials $1.87 Direct labor 1.70 Variable factory overhead 0.57 Variable selling expense 0.42 Fixed manufacturing cost totals $245,650 per year. Administrative cost (all fixed) totals $297,606. Comer expects to sell 225,000 strings of lights next year. Required: Calculate the break-even point in units. Calculate the margin of safety in units. Calculate the margin of safety in dollars. CONCEPTUAL CONNECTION Suppose Comer actually experiences a price decrease next year, while all other costs and the number of units sold remain the same. Would this increase or decrease risk for the company? (Hint: Consider what would happen to the number of break-even units and to the margin of safety.)
Exercise 7-40 Margin of Safety
Objective 5
Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $8.12 per string. The variable costs per string are as follows:
Direct materials $1.87
Direct labor 1.70
Variable factory
Variable selling expense 0.42
Fixed
Required:
Calculate the break-even point in units.
Calculate the margin of safety in units.
Calculate the margin of safety in dollars.
CONCEPTUAL CONNECTION Suppose Comer actually experiences a price decrease next year, while all other costs and the number of units sold remain the same. Would this increase or decrease risk for the company? (Hint: Consider what would happen to the number of break-even units and to the margin of safety.)
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