Margin of Safety

Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $12.43 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 $557,983 per year. Administrative cost (all fixed) totals $414,749. Comer expects to sell 257,600 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