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Serendipity Sound Inc. Questions

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

Selling price per unit (package of two CDs) $ 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 (120,000 units) $ 3,000,000

In the following requirements, ignore income taxes.

1. What is Serendipity Sound's break-even point in units? (Do not round your intermediate calculations.)

Break-even point units

2. What is the company's break-even point in sales dollars? (Do not round your intermediate calculations.

Break-even point $

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

Number of sales units

4. What is the firm's margin of safety? (Omit the "$" sign in your response.)

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?

Break-even point units

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? (Do not round intermediate calculations

Selling price $

Solution Summary

The solution answers six questions on break-even points, selling price, margin of safety and number of sales units in an attached Word document.