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    Serendipity Sound, Inc.

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

    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 unit of product must it charge to maintain the same contribution-margin ratio?

    © BrainMass Inc. brainmass.com October 9, 2019, 9:55 pm ad1c9bdddf
    https://brainmass.com/business/financial-ratios/serendipity-sound-inc-201788

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

    Required:
    1. What is Serendipity Sound's break-even point in units?
    First, you need to find contribution margin per unit as follows: -
    Contribution margin per unit = Sales price per unit - Variable cost per unit
    = 25 - 19.80 = 5.20
    Break-even point in units = Total Fixed Costs/Contribution per unit
    = 468,000/5.20 = 90,000 units
    2. What is the company's break-even point in sales dollars?
    Break-even point in sales dollars = 90,000 ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer the followings: -
    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 unit of product must it charge to maintain the same contribution-margin ratio?

    $2.19