Margin of Safety 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: 1. Calculate the break-even point in units. fill in the blank 1 units 2. Calculate the margin of safety in units. fill in the blank 2 units 3. Calculate the margin of safety in dollars. $fill in the blank 3 4. 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.)
Margin of Safety
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 |
0.57 |
| Variable selling expense | 0.42 |
Fixed
Required:
1. Calculate the break-even point in units.
fill in the blank 1 units
2. Calculate the margin of safety in units.
fill in the blank 2 units
3. Calculate the margin of safety in dollars.
$fill in the blank 3
4. 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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