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 $$195,000$ per year. The average price for the Tuff$-$Pup is $$35,$ and the average

variable cost is $$22$ per unit. Currently, Reagan produces and sells $20,000$ Tuff$-$Pups annually.

Required:

How many Tuff$-$Pups must be sold to break even?

$$ units

If Reagan wants to earn $$84,500$ in profit, how many Tuff$-$Pups must be sold?

$$ units

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Break$-$even in units $($Fixed costs $/$ Contribution margin per unit$).$

Units needed to obtain targeted profit $=($Total fixed costs $+$ Targeted profit$)\frac{?}{?}$ Contribution margin per unit.

Prepare a variable$-$costing income statement to verify your answer.

Reagan, Inc.

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Remember a contribution margin income statement calculates contribution$-$margin not gross profit.

Suppose that Reagan would like to lower the break$-$even units to $9,750.$ 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 $9,750.$ If required, round your intermediate computations and final answer to the nearest

cent.

$

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, $45\mathrm{.}555\%$ would be entered as $"{45\mathrm{.}56}^{?}).$

$\%$

What would the new total operating income for next year be$?$ Round your answer to the nearest dollar.