The Garret Company manufactures and sells pens. Currently, 5,100,000 units are s

Question

The Garret Company manufactures and sells pens. Currently, 5,100,000 units are sold per year at $0.60 per unit. Fixed costs are $860,000 per year. Variable costs are $0.40 per unit. Read the requirements Requirement 1. What is the current annual operating income? (a) Start by determining the formula to calculate operating income. Units soldxSelling price Variable costs Fixed costs Operating income The current annual operating income is $ (b) What is the current breakeven point in revenues? Determine the formula to calculate the breakeven point in revenues Selling priceBreakeven revenues Breakeven units The current breakeven point in revenues equal s2580000 Compute the new operating income for requirements 2 through 4 Requirement 2 A SO.10 per unit increase in variable costs results in a new operating ossof loss of S 350000

Explanation / Answer

3)Fixed cost : 860000(1+.20)=1032000

units sales :5100000[1+.20]=6120000

contribution : 6120000[.60-.40] = 1224000

operating income = 1224000-1032000 = 192000

4)New selling price : .60(1-.40)= .36

new variable cost : .40(1-.30) = .28

unit sold : 5100000(1+.45)=7395000

fixed cost :860000(1-.40)= 516000

new operating income =unit [price-variable cost ]- fixed cost

               7395000[.36-.28]- 516000

                  591600-516000

              = 75600

5)fixed cost :860000(1+.20)=1032000

BEP = 1032000/(.60-.40)

             1032000/.20

            = 5160000

6)fixed cost= 860000+20000=880000

selling price = .60 (1+.20)= .72

BEP = 880000/(.72-.40)

         880000/ .32

       2750000 units

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