Plata produces and sells plastic storage containers. Last year, Plata sold 125,000 units. The income statement for Plata, 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.