The LOLA\'S store presents the following information related to your income and

Question

The LOLA'S store presents the following information related to your income and costs:

Sales Price .............................. $ 42

Invoice costs ........................... 22

Sales commissions ............... .. 6

Shipping .................................. 4

Advertising ........................... $ 60,000

Rent .................................... .. 30,000

.............................. .. 150,000

5. If management decides to eliminate commissions and increase salaries to $ 230,000, what would be the new BEP.

6. If management decides to increase the price to $ 45, raise the variable costs to $ 36, the fixed costs increase to $ 260,000 in total. This strategy projects to earn $ 300,000. How many units should you sell ?????

7. With the original data, determine the Degree of Operating Leverage in dollars and percent.

Explanation / Answer

Contribution per unit if commission is removed 14 (42-22-6) Fixed cost 320000 (60000+30000+230000) 5 New Breakeven Point   = Fixed cost / Contribution per unit 320000/14 22857 Units 6 Required Contribution 560000 (260000+300000) Contribution margin per unit 9 (45-36) Units need to be sold 560000/9 62222 Units 7 Degree of operating leverage in terms of dollar Contribution / Operating Income 5 Degree of operating leverage in % Contribution margin % / Operating margin 0.238095 / 0.047619 5

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