Break-evenpoint and operating leverage Allison Radios manufactures a complete li

Question

Break-evenpoint and operating leverage Allison Radios manufactures a complete line of radio andcommunication equpment for law enforcement agencies. Theaverage selling price of its finished product is $180 perunit. The variable cost for these same units is $126. Allison Radios incurs fixed costs of $540,000 per year. a.) What is the break-even point in units for thecompany? b.) What is the dollar sales volume the firm must achieve inorder to reach the break-even point? c.) What would be the firm's profit or loss at the followingunits of production sold: 12,000 units?, 15,000 units? 20,000units? d.) Find the degree of opertaing leverage for the roductionand sales levels given in part (c.) Please show how you got the answers. Thanks. Break-evenpoint and operating leverage Allison Radios manufactures a complete line of radio andcommunication equpment for law enforcement agencies. Theaverage selling price of its finished product is $180 perunit. The variable cost for these same units is $126. Allison Radios incurs fixed costs of $540,000 per year. a.) What is the break-even point in units for thecompany? b.) What is the dollar sales volume the firm must achieve inorder to reach the break-even point? c.) What would be the firm's profit or loss at the followingunits of production sold: 12,000 units?, 15,000 units? 20,000units? d.) Find the degree of opertaing leverage for the roductionand sales levels given in part (c.) Please show how you got the answers. Thanks.

Explanation / Answer

Selling Price perunit   = $180 per unit Variable Cost perunit = $126 per unit Fixed Costs = $540,000 peryear (a)Calculating Break-Even Point in units: Break-Even Point (inunits) = Fixed Cost / Contribution per unit Contribution per unit =Sales per unit - Vairable Cost per unit Contribution per unit = $180 -$126 = $54 Break-Even Point (inunits) = $540,000 / $54 Break-Even Point(in units) = 10,000 units (b)Calculating Break-Even Sales Volume: Break-Even Sales Volume= Fixed Cost / (P/V Ratio) P/V Ratio = Contributionper unit / Sales per unit P/V Ratio = $54 /$180 = 0.3 (or) 30% Break-Even Sales Volume= $540,000 / 0.3 Break-Even Sales Volume =$1,800,000 ( c) Calculating ProfitAmount: Profit = (Sales * Contribution) -Fixed Cost Profit = (12,000 * $54)- $540,000 = $108,000 Profit = (15,000 * $54)- $540,000 = $270,000 Profit = (20,000 * $54)- $540,000 = $540,000 (d)Calculating Degree of Operating Leverage(DOL): DOL = $540,000 / [($126* 12,000) + $540,000] DOL = $540,000 /$2,052,000 DOL = 0.2631 (or)26.31% DOL = $540,000 / [($126* 15,000) + $540,000] DOL = $540,000 /$2,430,000 DOL = 0.2222 (or)22.22% DOL = $540,000 / [($126* 20,000) + $540,000] DOL = $540,000 /$3,060,000 DOL = 0.1764 (or)17.64% Selling Price perunit   = $180 per unit Variable Cost perunit = $126 per unit Fixed Costs = $540,000 peryear (a)Calculating Break-Even Point in units: Break-Even Point (inunits) = Fixed Cost / Contribution per unit Contribution per unit =Sales per unit - Vairable Cost per unit Contribution per unit = $180 -$126 = $54 Break-Even Point (inunits) = $540,000 / $54 Break-Even Point(in units) = 10,000 units (b)Calculating Break-Even Sales Volume: Break-Even Sales Volume= Fixed Cost / (P/V Ratio) P/V Ratio = Contributionper unit / Sales per unit P/V Ratio = $54 /$180 = 0.3 (or) 30% Break-Even Sales Volume= $540,000 / 0.3 Break-Even Sales Volume =$1,800,000 ( c) Calculating ProfitAmount: Profit = (Sales * Contribution) -Fixed Cost Profit = (12,000 * $54)- $540,000 = $108,000 Profit = (15,000 * $54)- $540,000 = $270,000 Profit = (20,000 * $54)- $540,000 = $540,000 (d)Calculating Degree of Operating Leverage(DOL): DOL = $540,000 / [($126* 12,000) + $540,000] DOL = $540,000 /$2,052,000 DOL = 0.2631 (or)26.31% DOL = $540,000 / [($126* 15,000) + $540,000] DOL = $540,000 /$2,430,000 DOL = 0.2222 (or)22.22% DOL = $540,000 / [($126* 20,000) + $540,000] DOL = $540,000 /$3,060,000 DOL = 0.1764 (or)17.64%

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.