The doral company manufactures and sells pens. currently, 5,000,000 units are sold per year at $0.50 per unit. the fixed costs are $900,000 per year. variable costs are $0.30 per unit.

consider each case separately:

1a. what is the current annual operating income?

b. what is the present breakeven point in revenues?

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

2. a $0.04 per unit increase in variable costs

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

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.

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

5. a 10% increase in fixed costs

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

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

1 a) Operating Income $ 100,000

1 b) Breakeven point in revenues $ 2,250,000

2) Operating Loss : $ 100,000

3) Operating Income $ 60,000

4) Operating Income $ 190,000

5) Breakeven point in revenues $ 2,475,000

Explanation:

Explanation for Answer 1a

Revenues (5,000,000*.5)                     = $ 2,500,000

Fixed costs                                               $(   900,000)

Variable Cost ( 5,000,000 *.30)              $( 1,500,000)

Operating Income                                    $     100,000

Explanation for Answer 1b

Revenues (4,500,000*.5)                     = $ 2,250,000

Fixed costs                                               $(   900,000)

Variable Cost ( 4,500,000 *.30)              $( 1,350,000)

Operating Income                                    $                  0

Explanation for Answer 2

Revenues (5,000,000*.5)                     = $ 2,500,000

Fixed costs                                               $(   900,000)

Variable Cost ( 5,000,000 *.34)              $( 1,700,000)

Operating Loss                                         $(   100,000)

Explanation for Answer 3

Revenues (5,500,000*.5)                     = $ 2,750,000

Fixed costs (900,000*110%)                    $(   990,000)

Variable Cost ( 5,000,000 *.34)              $( 1,700,000)

Operating Income                                    $      60.000

Explanation for Answer 4

Revenues (5,000,000*140% * 80 %)                  = $   2,800.000

Fixed costs (900,000*80%)                                  $ (    720,000)

Variable Cost ( 7,000,000 *.27)                            $ ( 1,890,000)

Operating Income                                                  $    190,000      

Explanation for Answer 5

Revenues (4,950,000*.5)                     = $ 2,475,000

Fixed costs                                               $(   990,000)

Variable Cost ( 4,950,000 *.30)              $( 1,585,000)

Operating Income                                    $                  0

Explanation for Answer 6

Revenues (3,680,000*.55)                     = $ 2,024,000

Fixed costs                                               $(   920,000)

Variable Cost ( 3,680,000 *.30)              $( 1,104,000)

Operating Income                                    $                  0                              

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.