Margin of Safety

Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $8.12 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 $245,650 per year. Administrative cost (all fixed) totals $297,606. Comer expects to sell 225,000 strings of light next year.

Unless otherwise instructed, round all total dollar figures (e.g., sales, total contribution margin) to the nearest dollar, breakeven or target units to the nearest unit, and unit costs and unit contribution margins to the nearest cent. Round ratios to four significant digits.

Required:

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

2. Calculate the margin of safety in units. units

3. Calculate the margin of safety in dollars. $

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.)