Question

question 5 Sunshine Company manufactures and sells pens. Currently, 6,000,000 units are sold per year at $0.70 per unit. Fixed costs are $980,000 per year. Variable costs are $0.30 per unit.

Consider each case separately:

Required:

1. a. What is the current annual operating income?

b. What is the current breakeven point in revenues?

Compute the new operating income for each of the following changes:

2. A $0.03 per unit increase in variable costs

3. A 12% increase in fixed costs and a 10% increase in units sold

4. A 18% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable

cost per unit, and a 40% increase in units sold

Compute the new breakeven point in units for each of the following changes:

4. A 10% increase in fixed costs

5. A 10% increase in selling price and a $20,000 increase in fixed costs

Answer 1