Tetrangle Manufacturing has fixed costs of $2,160 per day. The firm manufactures

Question

Tetrangle Manufacturing has fixed costs of $2,160 per day. The firm manufactures bicycle component upgrade kits. The kits have a short-run average variable cost of $48 and are sold for $66 each. ?What is the break even level of daily output for the firm? ?What is the degree of operating leverage when daily output is Q = 170?

Explanation / Answer

Let the Q kits be produced and sold then total cost of product produced = Fixed cost + variable cost = $ 2160 + $ 48 Q total selling cost of product = $66 Q break even point = > $ 2160 + $ 48 Q = $66 Q so Q= 120 a) 120 b) total cost of production when Q= 170 => 2160+ 48 *170 = 10320 ' total selling cost = 66*170 = 11220 so degree of operating leverage = 11220-10320 =$ 900

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