Matoaka Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $40 throughout the country to loyal alumni of over 1,000 schools.

Matoaka’s variable costs are 40% of sales; fixed costs are $120,000 per month.

Required

a. What is Matoaka’s annual breakeven point in sales dollars?

b. Matoaka currently sells 100,000 blankets per year. If sales volume were to increase by

15%, by how much would operating income increase?

c. Assume that variable costs increase to 45% of the current sales price and fixed costs increase by $10,000 per month. If Matoaka were to raise its sales price by 10% to cover these new costs, what would be the new annual breakeven point in sales dollars?

d. Assume that variable costs increase to 45% of the current sales price and fixed costs increase by $10,000 per month. If Matoaka were to raise its sales price 10% to cover these new costs, but the number of blankets sold were to drop by 5%, what would be the new annual operating income?

e. If variable costs and fixed costs were to change as in part (d), would Matoaka be better off raising its selling price and losing volume or keeping the selling price at $40 and selling 100,000 blankets? Why?