Question 2. CVP25%

Serendipity Sound, Inc manufactures and sells compact discs. Price and cost data are as follows:

Selling price per unit (package of two discs)$25.00

Variable costs per unit:

Direct material$10.50

Direct labor$5.00

Manufacturing overhead$3.00

Selling expenses$1.30

Total Variable costs per unit$19.80

Annual fixed costs:

Manufacturing overhead$192,000

Selling and administrative$276,000

Total fixed costs$468,000

Forecasted annual sales volume $3,000,000

Required:

What is Serendipity Sound's break-even point in units?

What is the company's break-even point in sales dollars?

How many units must be sold to earn $260,000?

What is the firm's margin of safety (using forecasted annual sales volume)?

If direct labor costs increase 8% next year, what will be the new break-even in units?