Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 65

Margin of Safety
Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $8.12 per string. The variable costs per string are as follows:

Fixed manufacturing cost totals $245,650 per year. Administrative cost (all fixed) totals $297,606. Comer expects to sell 225,000 strings of light next year.
Required:
1. Calculate the break-even point in units.
2. Calculate the margin of safety in 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.)