Yuan Company makes and sells strings of colorful indoor or outdoor lights for holiday display to retailers for $8.42 per string. 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 $245,650 per year. Administrative cost (all fixed) totals $301,505. Yuan expects to sell 225,000 strings of light next year.
i) Compute break-even point in units.
ii) Compute margin of safety in units.
iii) Compute margin of safety in dollars.
iv) Assume actually experiences the price decrease next year where as all other costs and number of units sold remain same. Would this increase or decrease risk for company? Consider what woul occur to number of break-even units and margin of safety.)