Serendipity Sound, ?-Problem 7-40 ? Inc. manufactures and sells compact discs. Price and cost data are as follows Basic CVP Relationships Selling price per unit (package of two CDs) Variable costs per unit $25.00 ( 1,2,4) 3 Sales units required for Direct material - ? - Direct labor Artist's royalties.. $6.00 target operating income 500 140. 000 450 ratio 208 60 contribulion-marg Selling expenses 1.30 Total variable costs per unit Annual fixed costs: Manufacturing overhead.. $ 192,000 276,000 $ 468,000 $3,000,000 Selling and administrative Total fixed costs.... Forecasted annual sales volume (120,000 units) 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 operating income of $260,000? What is the firm's margin of safety? 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? 4. 5. 6. CMA, adapted)