Question

at $1.00 each. Fixed costs are $900.000 per year. Variable costs per unit equal $0.4 per pencil. Jaguar Manufacturing produces and sells pencils. Currently, 5,000,000 pencils are sold per year 2. Compute the operating income and breakeven point in revenues for the following independent oblem 4 [19 Points) Required: 1. (a) What is the current annual operating income? [3 points] (b) What is the current breakeven point in revenues? (4 points) cases: (a) A 10% increase in fixed costs. [5 points] (b) A 10% increase in the selling price per pencil and a $20,000 increase in fixed costs. 17 points)

Answer 1

Answer(1) (a) Sales Less : Variable Cost Contribution margin Less: Fixed Expenses Net Operating Income 5,000,000 * $1 5,000,000 * $0.4 $5,000,000 2,000,000 $3,000,000 900,000 $2,100,000 (b) Contribution margin ratio = Contribution margin *100 Sales $3,000,000 *100 $5,000,000 60% Break even point(in $) Fixed Cost Contribution margin ratio $900,000 60% $1,500,000

Answer(2) (a) A 10% increase in Fixed Cost Sales Less : Variable Cost Contribution margin Less: Fixed Expenses Net Operating Income 5,000,000 * $1 5,000,000 * $0.4 $5,000,000 2,000,000 $3,000,000 990,000 $2,010,000 110% of 900,000 Break even point(in $) Fixed Cost Contribution margin ratio $990,000 60% $1,650,000 (b) A 10% increase in selling price per pencil and $20,000 increase in Fixed Cost 5,000,000 * $1.10 5,000,000 * $0.4 Sales Less : Variable Cost Contribution margin Less: Fixed Expenses Net Operating Income $5,500,000 2,000,000 $3,500,000 920,000 $2,580,000 $ 900,000 +$ 20,000 New Contribution margin ratio Contribution margin *100 Sales $3,500,000 *100 $5,500,000 63.64% Break even point(in $) Fixed Cost Contribution margin ratio $920,000 63.64% $1,445,714.29 $1,445,714 (rounded)