Question

Margin of Safety Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display...

Margin of Safety

Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $17.51 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 $902,615 per year. Administrative cost (all fixed) totals $620,305. Comer expects to sell 240,800 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.
$

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Homework Answers

Answer #1

Calculation of Contribution Margin per Unit

**Contribution Margin per Unit = Selling Price per unit - Variable expenses per unit

.

Selling Price per Unit    $17.51
Minus: Variable expenses:
   Direct materials $1.87
   Direct labor $1.70
   Variable factory overhead $0.57
   Variable selling expense $0.42 $4.56
Contribution Margin per Unit $12.95

Calculation of total fixed cost

Amount
Fixed manufacturing cost $902,615
Fixed administrative cost $620,305
Total fixed cost $1,522,920

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