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

Problem $7-40$

Basic CVP Relationships $($L$07-1,7-2,7-4)$

$3.$ Sales units required for target net profit: $140,000$ units

$6.$ Old contribution$-$margin ratio: $208$

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

Selling price per unit $($package of two CD:

Variable costs per unit:

Direct material

Direct labor

Manufacturing overhead

Selling expenses

Total variable costs per unit

Annual fowed costs:

Manufacturing owerhead

Selling and administrative

Total fixed costs

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

In the following requirements, ignore income taxes.

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 would Serendipity Sound have to sell in order to earn $$260,000?$

What is the firm's margin of safety?

Chapter $7$ Cost$-$Volume$-$Profit Analysis

$321$

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?

If the company's direct$-$labor costs do increase by $8$ percent, what selling price per unit of product must it charge to maintain the same contribution$-$margin ratio?

$($CMA adapted$)$