Margin of Safety

Ciganda Company produces and sells strings of colorful indoor$/$outdoor lights for holiday display to retailers for $$9\mathrm{.}45$ per string. The variable costs per string are as follows:

Direct materials

$$2\mathrm{.}90$

Direct labor

$1\mathrm{.}70$

Variable factory overhead

$0\mathrm{.}48$

Variable selling expense

$0\mathrm{.}42$

Fixed manufacturing cost totals $$251,615$ per year. Administrative cost $($all fixed$)$ totals $$181,305.$ The company expects to sell $109,100$ strings of light next year.

Required:

Calculate the break$-$even point in units.

$x$ units

Calculate the margin of safety in units.

$x$ units

Calculate the margin of safety in dollars.

$

X

Conceptual Connection: Suppose Ciganda 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.$)$