Answer:
Operating Income = $100,000
Explanation:
1 a. What is the current annual operating income?
Revenue - 5,000,000* $0.5 = 2,500,000
Less: Variable Costs - 5,000,000*$0.3 = 1,500,000
Contribution = 1,000,000 (margin = 1m/2.5m = 40%)
Less: Fixed Costs ....$900.000
Operating Income = $100,000
b. What is the present break even point in revenues?
BEP = FC/Contribution Margin = 900,000/0.4 = $2,250,000
2. A $0.04 per unit increase in variable costs
Revenue - 5,000,000* $0.5 = 2,500,000
Less: Variable Costs - 5,000,000*$0.34 = 1,700,000
Contribution = 800,000
Less: Fixed Costs ....$900.000
Operating Income = ($100,000)
3. A 10% increase in fixed costs and a 10% increase in units sold
Revenue - 5,500,000* $0.5 = 2,750,000
Less: Variable Costs - 5,500,000*$0.3 = 1,650,000
Contribution = 1,100,000
Less: Fixed Costs ....$990.000
Operating Income = $110,000
4. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable cost per unit and a 40% increase inunits sold.
Revenue - 7,000,000* $0.4 = 2,800,000
Less: Variable Costs - 7,000,000*$0.27 = 1,890,000
Contribution = 910,000
Less: Fixed Costs ....$720.000
Operating Income = $190,000
5.Compute the new breakeven point in units for each of the following changes: A 10% increase in fixed costs
BEP = FC/Contribution Margin = 810,000/0.4 = $2,025,000
6. A 10% increase in selling price and a $20,000 increase in fixed costs
Revised Contribution Margin = 0.55 - 0.3 = 0.25; 0.25/0.55 = 0.4545
BEP = FC/Contribution Margin = 1080,000/0.4545 = $2,376,238
