Margin of Safety

Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $10.76 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 expense0.42

Fixed manufacturing cost totals $461,900 per year. Administrative cost (all fixed) totals $292,640. Comer expects to sell 230,500 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.)