Margin of Safety Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $15.96 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 $784,320 per year. Administrative cost (all fixed) totals $601,920. Comer expects to sell 261,400 strings of light next year. Required: 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.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Margin of Safety
Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $15.96 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 $784,320 per year. Administrative cost (all fixed) totals $601,920. Comer expects to sell 261,400 strings of light next year.Required:
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 or decrease risk for the company? (Hint: Consider what would happen to the number of break-even units and to the margin of safety.)
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