Margin of Safety

Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $13.48 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 $559,284 per year. Administrative cost (all fixed) totals $414,780. Comer expects to sell 246,700 strings of light next year.

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.) (increase or decrease)