Problem:
Serendipity Sound, Inc. manufactures and sells compact discs. Price and cost data are as follows:
Selling 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
Forecasted annual sales volume (120,000 units) $ 3,000,000
In the following requirements, ignore income taxes.
Required:
1. What is Serendipity Sound's break-even point in units? (Do not round your intermediate calculations.)
2. What is the company's break-even point in sales dollars? (Do not round your intermediate calculations.
3. How many units would Serendipity Sound have to sell in order to earn $260,000?
4. What is the firm's margin of safety? (Omit the "$" sign in your response.)
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? (Do not round intermediate calculations