Serendipity Sound, Inc. manufactures and sells compact discs. Price and cost data are as follows: Selling price
Question:
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 casts 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?
2. What is the company’s break-even point in sales dollars?
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?
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?
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