Question

In: Accounting

The Westover Company manufactures and sells pens. Present sales output is 5,300,000 units per year at...

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

Requirement 1. (a) What is the present operating income for a year?

Start by determining the formula to calculate operating income.

[

Units sold

x (

Selling price

Variable costs

) ] -

Fixed costs

Operating income

The current annual operating income is

$150000150000.

Requirement 1. (b) What is the present breakeven point in revenues?

Determine the formula to calculate the breakeven point in revenues.

Breakeven units

Selling price

Breakeven revenues

The present breakeven point in revenues equals

$22750002275000.

(Hold all decimals in interim calculations. Round your final answer to the nearest whole dollar.)

Requirement 2. Compute the new operating income or loss for cases a, b, and c. (Use parentheses or a minus sign to show an operating loss.)

a. A

$0.05

per unit increase in variable costs results in a new operating income or loss of

$(115,000)(115,000).

b. A

10%

increase in fixed costs and a

10%

increase in units sold results in a new operating income or loss of

$nothing.

please send me the whole answer

Solutions

Expert Solution

Requirement 1(-a)- Westoveer company Manufactures
(	Units sold	x (	Selling price	-	Variable costs	) ) -	Fixed costs	=	Operating income

(	5300000	x (	$0.50	-	$0.30	) ) -	910000	=	$150,000

Requirement 1(b)
Breakeven units	X	Selling Price	=	Breakeven revenues
4550000	X	$0.50	=	$2,275,000

* Breakeven Unit = Fixed Cost/ Contribution Margin per Unit
=910000/(0.5-0.3)=4550000 Unit

Requirement -2 (a)), in Case of increase in Variable Cost
Sales Reveue (5300000*0.50)		$2,650,000.00
Less: Variable Cost (5300000*(0.30+0.05))		$1,855,000.00
Contribution Margin		$795,000.00
Less; Fixed Cost		$910,000.00
Net Operating Income		-$115,000.00

Requirement -2 (b), in Case of increase in Fixed Cost & Unit Sold
Sales Reveue (5300000*1.100.50)		$2,915,000.00
Less: Variable Cost (53000001.100.30)		$1,749,000.00
Contribution Margin		$1,166,000.00
Less; Fixed Cost (910000*1.10)		$1,001,000.00
Net Operating Income		$165,000.00

ekkarill92 answered 7 months ago

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