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Exercise 4 - 2 9 Margin of Safety Yuan Company produces and sells strings of colorful indoor / outdoor lights for holiday display to retailers
Exercise Margin of Safety
Yuan Company produces and sells strings of colorful indooroutdoor lights for holiday display
to retailers for $ per string. The variable costs per string are as follows:
Direct materials $
Direct labor
Variable factory overhead
Variable selling expense
Fixed manufacturing cost totals $ per year. Administrative cost all fixed totals
$ Yuan expects to sell strings of light next year.
Required:
Calculate the breakeven point in units.
Calculate the margin of safety in units.
Calculate the margin of safety in dollars.
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? Hint: Consider what would happen to the number of breakeven units and to the margin of safety.
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