MARGIN OF SAFETY
Chase Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $6.28 per string. The variable costs per string are as follows:
|
Direct materials
|
$1.27
|
|
Direct labor
|
1.58
|
|
Variable overhead
|
0.63
|
|
Variable selling
|
0.17
|
Fixed manufacturing costs total $231,650 per year. Administrative costs (all fixed) total $315,390. Chase expects to sell 380,000 strings of light next year.
Required:
1. Calculate the break-even point in units.
2. Calculate the margin of safety in units.
3. Calculate the margin of safety in dollars.