Christabella, daughter of John Milton, produces and sells self-help kits to siblings to put away differences between them so siblings can work towards common goals. Last year, Christabella sold 198,400 kits (units). The income statement for Christabella, for last year is as follows: Sales $992,000 Less: Variable expenses 545,600 Contribution margin $446,400 Less: Fixed expenses 180,000 Operating income $266,400 a. Compute the break-even point in units and in revenues. Compute the margin of safety in sales revenue for last year. b. Suppose that the selling price decreases by 8 percent. Will the break-even point increase or decrease? Recompute the break-even point in units. (Round up to the nearest whole unit.) c. Suppose that the variable cost per unit decreases by $0.20. Will the break-even point increase or decrease? Recompute the break-even point in units. (Round up to the nearest whole unit.) d. Can you predict whether the break-even point increases or decreases if both the selling price and the unit variable cost decrease? Recompute the break-even point in units incorporating both of the changes in Requirements 2 and 3. (Round up to the nearest whole unit.) e. Assume that total fixed costs increase by $50,000. (Assume no other changes from the original data.) Will the break-even point increase or decrease? Recompute it. (Round up to the nearest whole unit.
Christabella, daughter of John Milton, produces and sells self-help kits to siblings to put
away differences between them so siblings can work towards common goals. Last year, Christabella sold
198,400 kits (units). The income statement for Christabella, for last year is as follows:
Sales $992,000
Less: Variable expenses 545,600
Contribution margin $446,400
Less: Fixed expenses 180,000
Operating income $266,400
a. Compute the break-even point in units and in revenues. Compute the margin of safety in sales
revenue for last year.
b. Suppose that the selling price decreases by 8 percent. Will the break-even point increase or decrease?
Recompute the break-even point in units. (Round up to the nearest whole unit.)
c. Suppose that the variable cost per unit decreases by $0.20. Will the break-even point increase or
decrease? Recompute the break-even point in units. (Round up to the nearest whole unit.)
d. Can you predict whether the break-even point increases or decreases if both the selling price and the
unit variable cost decrease? Recompute the break-even point in units incorporating both of the changes
in Requirements 2 and 3. (Round up to the nearest whole unit.)
e. Assume that total fixed costs increase by $50,000. (Assume no other changes from the original data.)
Will the break-even point increase or decrease? Recompute it. (Round up to the nearest whole unit.
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