Chapter 3, Problem 3.20E

CVP exercises. The Doral Company manufactures and sells pens. Currently 5,000,000 units are sold per year at $0.50 per unit. Fixed costs are $900,000 per year. Variable costs are $0.30 per unit.

Consider each case separately:

1. a. What is the current annual operating income?

   Required

2. b. What is the current breakeven point in revenues?

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

1. 1. A $0.04 per unit increase in variable costs
2. 2. A 10% increase in fixed costs and a 10% increase in units sold
3. 3. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable cost per unit, and a 40% increase in units sold

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

1. 4. A 10% increase in fixed costs
2. 5. A 10% increase in selling price and a $20,000 increase in fixed costs