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.
- Required:*
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. Suppose 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? (Hint: Consider what woul happen to the number of break-even units and the margin of safety.)
