CHANGES IN BREAK EVEN POINTS WITH CHANGES IN UNIT PRICES
Belmont produces and sells plastic storage containers. Last year, Belmont sold 125,000 units. The income statement for Belmont, Inc., for last year is as follows:
|
Sales |
$625,000 |
|
Less: Variable expenses |
343,750 |
|
Contribution margin |
$281,250 |
|
Less: Fixed expenses |
180,000 |
|
Operating income |
$101,250 |
Required:
1. Compute the break even point in units and in revenues. Compute the margin of safety for last year.
2. Suppose that the selling price increases by 10 percent. Will the break even point increase or decrease? Recompute it.
3. Suppose that the variable cost per unit increases by $0.35. Will the break even point increase or decrease? Recompute it.
4. Can you predict whether the break even point increases or decreases if both the selling price and the unit variable cost increase? Recompute the break even point incorporating both of the changes in Requirements 1 and 2.
5. 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.