Question

The

Westover

Company manufactures and sells pens. Present sales output is

5,300,000

units per year at a selling price of

$0.50

per unit. Fixed costs are

$910,000

per year. Variable costs are

$0.30

per unit.Required

(Consider each case​ separately.)

1.	a. What is the present operating income for a​ year?
	b. What is the present breakeven point in​ revenue?

2.	Compute the new operating income for each of the following independent​ changes:
	a. A $0.05 per unit increase in variable costs.
	b. A 10​% increase in fixed costs and a 10​% increase in units sold.
	c. A 20​% decrease in fixed​ costs, a 20​% decrease in selling​ price, a 30​% decrease in variable costs per​ unit, and a 40​% increase in units sold.

3.	Compute the new breakeven point in units for each of the following​ changes:
	a. A 10​% increase in fixed costs.
	b. A 10​% increase in selling price and a $10,000 increase in fixed costs.

What is the present operating income for a​ year?

Start by determining the formula to calculate operating income.

[

x (

-

) ] -

=

Operating income

Answer 1

1)	Particulars	Serial	Per Unit	Total $
	Unit Sold		5,300,000
	Selling Price	a	0.50	2,650,000
	Variable cost	b	0.30	1,590,000
	Contribution	c=a+b	0.20	1,060,000
	Contribution Margin Ratio	d=c/a		40.00%
	Fixed Cost	e		910,000
a)	Present Operating Income	f=c-e		150,000
b)	Breakeven Point in Revenue	g=e/d		2,275,000
2)	Particulars	Serial	Per Unit	Total $
	Unit Sold		5,300,000
	Selling Price	a	0.50	2,650,000
	Variable cost	b	0.35	1,855,000
	Contribution	c=a+b	0.15	795,000
	Contribution Margin Ratio	d=c/a		30.00%
	Fixed Cost	e		910,000
a)	New Operating Income/(Loss)	f=c-e		(115,000)
2)	Particulars	Serial	Per Unit	Total $
	Unit Sold		5,830,000
	Selling Price	a	0.50	2,915,000
	Variable cost	b	0.35	2,040,500
	Contribution	c=a+b	0.15	874,500
	Contribution Margin Ratio	d=c/a		30.00%
	Fixed Cost	e		1,001,000
b)	New Operating Income/(Loss)	f=c-e		(126,500)
2)	Particulars	Serial	Per Unit	Total $
	Unit Sold		7,420,000
	Selling Price	a	0.40	2,968,000
	Variable cost	b	0.21	1,558,200
	Contribution	c=a+b	0.19	1,409,800
	Contribution Margin Ratio	d=c/a		47.50%
	Fixed Cost	e		728,000
c)	New Operating Income/(Loss)	f=c-e		681,800
3)	Particulars	Serial	Per Unit	Total $
	Unit Sold		5,300,000
	Selling Price	a	0.50	2,650,000
	Variable cost	b	0.30	1,590,000
	Contribution	c=a+b	0.20	1,060,000
	Contribution Margin Ratio	d=c/a		40.00%
	Fixed Cost	e		1,001,000
	Present Operating Income	f=c-e		59,000
a)	Breakeven Point in Units	g=e/d		5,005,000
3)	Particulars	Serial	Per Unit	Total $
	Unit Sold		5,300,000
	Selling Price	a	0.55	2,915,000
	Variable cost	b	0.30	1,590,000
	Contribution	c=a+b	0.25	1,325,000
	Contribution Margin Ratio	d=c/a		45.45%
	Fixed Cost	e		920,000
	Present Operating Income	f=c-e		405,000
b)	Breakeven Point in Units	g=e/d		3,680,000