Surreal Sound. Inc. manufactures and sells compact disks. Price and cost data are as follows:

In the following requirements, ignore income taxes.

Required:
1. What is Surreal Sound's break-even point in units?
2. What is the company's break-even point in sales dollars?
3. How many units would Surreal Sound have to sell in order to earn \($390,000\) ?
4. What is the firm's margin of safety.
5. Management estimates that direct-labor costs will increase by 10 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 10 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 (140,000 units). $8.20 4.00 6.00 1.60 $19.80 288,000 414,000 $ 702,000 $3,500,000