$7-40$

Problem $7-40$ Basic CVP Relationships $($LO $7-1,7-2,7-4)$

$3.$ Sales units required for target net profit: $140,000$ units

$6.$ Old contribution$-$margin ratio: $208$

Serendipity Sound, Inc., manufactures and sells compact discs. Price and cost data are as follows:

Selling price per unit $($package of two CDs

Variable costs per unit:

Direct material

Direct labor

Manufacturing overhead

Selling expenses

Total variable costs per unit

Annual fixed costs:

Manufacturing overhead

Selling and administrative

Total fixed costs

Forecasted annual sales volume $(120,000$ units$)$

$\backslash$table$[[$$$,25\mathrm{.}00,],[$$$,10\mathrm{.}50],[5\mathrm{.}00,],[3\mathrm{.}00,],[,1\mathrm{.}30],[$$$,19\mathrm{.}80,],[$$$,],[192,000,],[276,000,],[$$$468,000,],[$$$3,000,000,]]$

In the following requirements, ignore income taxes.

Requlred:

What is Serendipity Sound's break$-$even point in units?

What is the company's break$-$even point in sales dollars?

How many units would Serendipity Sound have to sell in order to earn $$260,000?$

What is the firm's margin of safety?

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?

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?

$($CMA$,$ adapted$)$