Yuan Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $8.42 per string. The variable costs per string are as follows:
Direct materials ………..$1.87
Direct labor ………….. 1.70
Variable factory overhead …….. 0.57
Variable selling expense ……. 0.42
Fixed manufacturing cost totals $245,650 per year. Administrative cost (all fixed) totals $301,505. Yuan expects to sell 225,000 strings of light next year.
1. Calculate the break-even point in units.
2. Calculate the margin of safety in units.
3. Calculate the margin of safety in dollars.
4. Conceptual Connection: Suppose Yuan actually experiences a price decrease next year while all other costs and the number of units sold remain the same. Would this increase or decrease risk for the company?