Zincor Manufacturing produces calculators that sell for $30 each; the fixed cost
ID: 2701122 • Letter: Z
Question
Zincor Manufacturing produces calculators that sell for $30 each; the fixed costs are $80,000 when 20,000 or fewer calculators are produced; and variable costs are $17.50 per calculator.
1. What is Zincor's operating breakeven point?
2. What is the firm's gain or loss at sales of a) 1,500 calculators and b) 8,000 calculators?
3. What is Zincor's degree of operating leverage of a) 5,000 units and b) 8,000 units?
4. Everything else being equal, what happens to the operating breakeven point of the selling price rises to $33?
Explanation / Answer
1. What is Zincor's operating breakeven point?
Operating Break Even Point = 80000/(30-17.50) = 6400 Unit
2. What is the firm's gain or loss at sales of a) 1,500 calculators and b) 8,000 calculators?
a) Loss= 1500*12.5 - 80000 = $ 61250
b) Gain = 8000*12.5 - 80000 =$ 20000
3. What is Zincor's degree of operating leverage of a) 5,000 units and b) 8,000 units?
a) DOL = (5000*12.5) / -17500 = -3.5714
b) DOL = (8000*12.5)/20000 = 5
4. Everything else being equal, what happens to the operating breakeven point of the selling price rises to $33?
Revised Operating Break Even Point = 80000/(33-17.50) = 5161.29 Unit
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