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Break-Even in Units, Target Income, New Unit Variable Cost, Degree of Operating Leverage, Percent Change in...

Question:

Break-Even in Units, Target Income, New Unit Variable Cost, Degree of Operating Leverage, Percent Change in Operating Income3. Suppose that Reagan would like to lower the break-even units to 12,000. The company does not believe that the price or fix

Break-Even in Units, Target Income, New Unit Variable Cost, Degree of Operating Leverage, Percent Change in Operating Income Reagan, Inc., has developed a chew-proof dog bed-the Tuff-Pup. Fixed costs are $204,400 per year. The average price for the Tuff-Pup is $36, and the average variable cost is $22 per unit. Currently, Reagan produces and sells 20,000 Tuff-Pups annually. Required: 1. How many Tuff-Pups must be sold to break even? units 2. If Reagan wants to earn $95,900 in profit, how many Tuff-Pups must be sold? units Prepare a variable-costing income statement to verify your answer. Reagan, Inc. Variable-Costing Income Statement Sales Less: Variable cost Contribution margin Less: Fixed expenses Operating income
3. Suppose that Reagan would like to lower the break-even units to 12,000. The company does not believe that the price or fixed cost can be changed. Calculate the new unit variable cost that would result in break-even units of 12,000. If required, round your intermediate computations and final answer to the nearest cent. 4. What is Reagan's current contribution margin and operating income? Current contribution margin Current operating income Calculate the degree of operating leverage. Round your answer to three decimal places. If sales increased by 10 percent next year, what would the percent change in operating income be? Use your rounded answer to the question above in your computations, and round your final percentage answer to two decimal places (for example, 45.555% would be entered as "45.56"). % What would the new total operating income for next year be? Round your answer to the nearest dollar.

Answers

Answer:

1) Break even point = 204,400/(36-22) = 14600 Units
2) Required unit = (204400+95900)/(36-22) = 21450 Units
Regan Inc
Variable Costing Income Statement
Amount($)
Sales(36*21450)         7,72,200
Less: Variable Cost(22*21450)         4,71,900
Contribution Margin         3,00,300
Less: Fixed expenses         2,04,400
Net operating Income            95,900
3) 12000 = 204400/(36-X)
4,32,000-12000X = 204400
-12000x=204400-432000
=-12000x = -227600
X(variable cost per unit ) = 18.97
4) Current contribution margin = 14*20000 = 280,000
Current operating income = 280000-204400 = 75,600
a)
Calculate Degree of operating leverage
Degree of operating leverage = Contribution Margin/Operating Income
Degree of operating leverage = (36-22)*20000/( (36-22)*20000-204400)
Degree of operating leverage = 280000/75600
Degree of operating leverage = 3.704
b)
If Sale increase by 10%
Percent Change in operating Income = Percentage Sale Increase * Degree of operating leverage
Percent Change in operating Income = 10%*3.704
Percent Change in operating Income = 37.04%
c)
New Total Operating Income = ( (36-22)*20000*1.1-204400)
New Total Operating Income = $ 103,600

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