Question

Surreal Sound, Inc., manufactures and sells compact disks. Price and cost data are as follows:
Selling price per unit (package of two CDs).................. $ 25.00
Variable costs per unit: Direct material............................. $ 8.20
Direct labor........................................................................ 4.00
Manufacturing overhead................................................... 6.00
Selling expenses................................................................ 1.60
Total variable costs per unit.............................................. $ 19.80
Annual fixed costs: Manufacturing overhead................... $ 288,000
Selling and administrative................................................. 414,000
Total fixed costs................................................................ $ 702,000
Forecasted annual sales volume (140,000 units)............. $ 3,500,000
In the following requirements, ignore income taxes.

Required:
1. What is Surreal Sound’s break- even point in units?
2. What is the company’s break- even point in sales dollars?
3. How many units would Surreal Sound have to sell in order to earn $ 390,000?
4. What is the firm’s margin of safety?
5. Management estimates that direct-labor costs will increase by 10 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 10 percent, what selling price per unit of product must it charge to maintain the same contribution- margin ratio?
(CMA, adapted)



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  • CreatedApril 22, 2014
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