Exercise $4-29$ Margin of Safety

Yuan Company produces and sells strings of colorful indoor$/$outdoor lights for holiday display

to retailers for $$8\mathrm{.}42$ per string. The variable costs per string are as follows:

Direct materials $$1\mathrm{.}87$

Direct labor $1\mathrm{.}70$

Variable factory overhead $0\mathrm{.}57$

Variable selling expense $0\mathrm{.}42$

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.

$4.$ 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.$)$