Oakville Company Recently Sold 70,000 Units, Generating Sales Revenue of $4,900,000

Essay

Oakville Company recently sold 70,000 units, generating sales revenue of $4,900,000. The company's variable cost per unit and total fixed cost amounted to $20 and $2,800,000, respectively. Management is in the process of studying the dollar impact of various transactions and events, and desires answers to the following independent cases:
Case No. 1:Management wants to lower the firm's break-even point to 52,000 units. All other things being equal, what must happen to fixed costs in order to achieve this objective?
Case No. 2: Oakville anticipates a $2 hike in the variable cost per unit. All other things being equal, if management desires to keep the firm's current break-even point, what must happen to Oakville's selling price? If selling price remains constant, what must happen to the firm's total fixed costs?
Required:
A. Answer the two cases raised by management.
B. Determine the impact (increase, decrease, or no effect) of the following operating changes on the items cited.1. An increase in variable selling costs on net income.2. A decrease in direct material cost on the unit contribution margin.3. A decrease in the number of units sold on the break-even point.