15-13A. (Break-even point and operating leverage) Allison Radios manufactures a
ID: 2664913 • Letter: 1
Question
15-13A. (Break-even point and operating leverage) Allison Radios manufactures a complete line of radio and communication equipment for law enforcement agencies. The average selling price of its finished product is $180 per unit. The variable cost for these same units is $126. AllisonRadios incurs fixed costs of $540,000 per year.
a. What is the break-even point in units for the company?
b. What is the dollar sales volume the firm must achieve in order to reach the break-even point?
c. What would be the firm’s profit or loss at the following units of production sold: 12,000 units? 15,000 units? 20,000 units?
d. Find the degree of operating leverage for the production and sales levels given in part (c).
Explanation / Answer
a.
QB = F/(P-V)
QB = $540,000/($180-$126)
= 10,000 units
b.
Dollar sales volume= 10,000 × $180
= $1,800,000
c.
Allison Radios
Unit
Sales
Price
Total
Sales
Fixed
Costs
Unit
Variable Cost
Total
Variable Costs
Total
Costs
Total Profit (Loss)
12000
$180
$2,160,000
$540,000
$126
$1,512,000
$2,052,000
$108,000
15000
$180
$2,700,000
$540,000
$126
$1,890,000
$2,430,000
$270,000
20000
$180
$3,600,000
$540,000
$126
$2,520,000
$3,060,000
$540,000
d.
Units
Contribution Margin
EBIT
DOL
12000
$648,000
$108,000
6
15000
$810,000
$270,000
3
20000
$1,080,000
$540,000
2
Allison Radios
Unit
Sales
Price
Total
Sales
Fixed
Costs
Unit
Variable Cost
Total
Variable Costs
Total
Costs
Total Profit (Loss)
12000
$180
$2,160,000
$540,000
$126
$1,512,000
$2,052,000
$108,000
15000
$180
$2,700,000
$540,000
$126
$1,890,000
$2,430,000
$270,000
20000
$180
$3,600,000
$540,000
$126
$2,520,000
$3,060,000
$540,000
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