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

Selling price per unit $($package of two CDs$)..................................................$ $ $25\mathrm{.}00$

Variable costs per unit:

Direct material $...................................................................................................$ $ $10\mathrm{.}50$

Direct labor $....................................................................................................5\mathrm{.}00$

Manufacturing overhead $............................................................................3\mathrm{.}00$

Selling expenses $..................................................................................................1\mathrm{.}30$

Total variable costs per unit $...............................................................................$ $ $19\mathrm{.}80$

Annual fixed costs:

Manufacturing overhead $.................................................................................$ $ $192,000$

Selling and administrative $..........................................................................276,000$

Total fixed costs $..........................................................................................$ $ $468,000$

Forecasted annual sales volume $(120,000$ units$)..................................$ $ $3,000,000$

In the following requirements, ignore income taxes.

Required:

$1.$ What is Serendipity Sound$$s break$-$even point in units?

$2.$ What is the company$$s break$-$even point in sales dollars?

$3.$ How many units would Serendipity Sound have to sell in order to earn $$260,000?$

$4.$ What is the firm$$s margin of safety?

$5.$ Management estimates that direct$-$labor costs will increase by $8$ percent next year. How many units

will the company have to sell next year to reach its break$-$even point?

$6.$ If the company$$s direct$-$labor costs do increase by $8$ percent, what selling price per