Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $15.08 per string. The variable costs per string are as follows:Direct materials$1.87Direct labor1.70Variable factory overhead0.57Variable selling expense0.42Fixed manufacturing cost totals $733,244 per year. Administrative cost (all fixed) totals $491,284. Comer expects to sell 207,400 strings of light next year. 1. Calculate the break-even point in units.units2. Calculate the margin of safety in units.units3. Calculate the margin of safety in dollars.4. Conceptual Connection: Suppose Comer actually experiences a price decrease next year while all other costs and the number of units sold remain the same. Would this increase ordecrease risk for the company? (Hint: Consider what would happen to the number of break-even units and to the margin of safety.)Increase V

Answered: 1. Calculate the break-even point in…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 40P

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Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $15.08 per string. The variable costs per string are as follows:

Direct materials	$1.87
Direct labor	1.70
Variable factory overhead	0.57
Variable selling expense	0.42

Fixed manufacturing cost totals $733,244 per year. Administrative cost (all fixed) totals $491,284. Comer expects to sell 207,400 strings of light next year.

1. Calculate the break-even point in units.
units
2. Calculate the margin of safety in units.
units
3. Calculate the margin of safety in dollars.
4. Conceptual Connection: Suppose Comer actually experiences a price decrease next year while all other costs and the number of units sold remain the same. Would this increase or
decrease risk for the company? (Hint: Consider what would happen to the number of break-even units and to the margin of safety.)
Increase V

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Break-even point: A breakeven analysis is a calculation of the point at which revenue equals expenses. It provides a dynamic overview of the relationship among revenue, cost, and profits and it is also called that cost volume profit analysis.

$B r e a k - e v e n p o i n t (I n u n i t s) = F i x e d c o s t \div C o n t r i b u t i o n p e r u n i t$

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