Problem 7-40 Basic CVP Relationships (L0 1,2,4) 3 Sales units required for 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: $25.00 $6.00 larget operating income Direct material 500 140 000 un 4.50 3.00 rao. 208 1.30 Direct labor Artist's royalties 60 contihulian-margin Manufacturing overhead.. Selling expenses Total variable costs per unit $19.80 Annual fixed costs: Manufacturing overhead Selling and administrative. $ 192,000 276,000 $ 468,000 $ 3,000,000 Total fixed costs Forecasted annual sales volume (120,000 units). 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 operating income of $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? 4. 5. 6