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

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?

Transcribed Image Text:

Selling price per unit (package of two CDs) $ 25.00 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) $ 10.50 5.00 3.00 1.30 $ 19.80 $ 192,000 276,000 $ 468,000 $3,000,000