Homework Answers
1-a) Contribution margin per unit= Selling price per unit-Variable costs per unit
= $0.60-0.40= $0.20
Operating income= Contribution margin per unit*Number of units sold-Fixed costs
= $0.20*5000000-880000= $120000
b) Break even point in units= Fixed costs/Contribution margin per unit
= $880000/0.20= 4400000
Break even point in revenues= Break even point in units*Selling price per unit
= 4400000*$0.60= $2640000
2) New variable costs= $0.40+0.08= $0.48
Contribution margin per unit= Selling price per unit-Variable costs per unit
= $0.60-0.48= $0.12
Operating income= Contribution margin per unit*Number of units sold-Fixed costs
= $0.12*5000000-880000
Operating loss= $-280000
3) New fixed costs= $880000*1.10= $968000
New units sold= 5000000*1.10= 5500000
Operating income= Contribution margin per unit*Number of units sold-Fixed costs
= $0.20*5500000-968000= $132000
4) New fixed costs= $880000*0.60= $528000
New selling price per unit= $0.60*0.60= $0.36
New variable cost per unit= $0.40*0.70= $0.28
New units sold= 5000000*1.45= 7250000
Contribution margin per unit= Selling price per unit-Variable costs per unit
= $0.36-0.28= $0.08
Operating income= Contribution margin per unit*Number of units sold-Fixed costs
= $0.08*7250000-528000= $52000
5) New fixed costs= $880000*1.10= $968000
Break even point in units= Fixed costs/Contribution margin per unit
= $968000/0.20= 4840000 units
6) New selling price= $0.60*1.10= $0.66
New fixed costs= $880000+30000= $910000
Contribution margin per unit= Selling price per unit-Variable costs per unit
= $0.66-0.40= $0.26
Break even point in units= Fixed costs/Contribution margin per unit
= $910000/0.26= 3500000 units
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The McKnight Company manufactures and sells pens. Currently, 5,000,000 units are sold per year at $0.60...
The McKnight Company manufactures and sells pens. Currently, 5,000,000 units are sold per year at $0.60...
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The McKnight Company manufactures and sells pens. Currently, 5,000,000 units are sold per year at $0.60...
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