1. eBook

   Print Item

   Margin of Safety

   Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $12.30 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 $490,716 per year. Administrative cost (all fixed) totals $373,842. Comer expects to sell 222,600 strings of light next year.

   Required:

   1. Calculate the break-even point in units. fill in the blank 1 units

   2. Calculate the margin of safety in units. fill in the blank 2 units

   3. Calculate the margin of safety in dollars. $fill in the blank 3

   4. Conceptual Connection: Suppose Comer 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 would happen to the number of break-even units and to the margin of safety.)

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