1. Noreen Company sells umbrellas that retail for $40. Noreen's variable costs are 40% of sales; fixed costs are $120,000 per month.
Required:
a) What is Noreen's annual breakeven point in sales dollars?
b) Noreen currently sells 100,000 umbrellas 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 Noreen 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 variable costs and fixed costs were to change as in part c). If Noreen were to raise its sales price by 10% to cover these new costs, what would be the new annual net operating income?
e) Assume variable costs and fixed costs were to change as in part c). Would Noreen be better off raising its selling price and losing volume or keeping the selling price at $40 and selling 100,000 umbrellas? Why?