6. Requirements

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Consider each case separately:

1.	a. What is the current annual operating income?
	b. What is the current breakeven point in revenues?

Compute the new operating income for each of the following changes:

2.	A $0.10 per unit increase in variable costs
3.	A 20% increase in fixed costs and a 20% increase in units sold
4.	A 40% decrease in fixed costs, a 40% decrease in selling price, a 30% decrease in variable cost per unit, and a 35% increase in units sold

Compute the new breakeven point in units for each of the following changes:

5.	A 20% increase in fixed costs
6.	A 20% increase in selling price and a $20,000 increase in fixed costs

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The McKnight Company manufactures and sells pens. Currently, 5,600,000 units are sold per year at $0.60 per unit. Fixed costs are $890,000 per year. Variable costs are $0.40 per unit.

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Part 1

Requirement 1. What is the current annual operating income?

(a) Start by determining the formula to calculate operating income.

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Operating income