The income statement for Fellows, Inc., is as follows:
|
Changes in Break-
|
Sales
|
$650,000
|
|
Even Points with
|
Less: Variable expenses
|
240,000
|
|
Changes in Unit
|
Contribution margin
|
$ 410,000
|
|
Prices
|
Less: Fixed expenses
|
295,200
|
|
LO1, LO2
|
Operating income
|
$ 114,800
|
Fellows produces and sells a single product. The income statement is based on sales of 100,000 units.
Required
1. Compute the break-even point in units and in revenues.
2. Suppose that the selling price increases by 10 percent. Will the break-even point increase or decrease? Recompute it.
3. Ignoring the price increase in Requirement 2, 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 2 and 3.
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.