Lifesaver help please.... Thank You A. ( Break - even point and operating levera

Question

Lifesaver help please.... Thank You

A. ( 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. Allison Radios incurs fixed costs of $540,000 per year. What is the break - even point in units for the company? What is the dollar sales volume the firm must achieve in order to reach the break - even point? What would be the firms profit or loss at the following units of production sold: 12,000 units? 15,000 units? 20,000 units? Find the degree of operating leverage for the production and sales levels given in part ( c ) .

Explanation / Answer

Revenue - Cost = Profit
In this case your revenue would be the "number of units sold"times $180. Your cost would be TWO things: Your fixed costs of$540,000 per year AND your variable costs of $126 per unit. If youdidn't sell a single thing, you would have zero revenue and$540,000 per year in fixed cost. Make sense?
Here, you're interested in your PROFIT being equal to zero(breakeven).
Thus,
180x - (540,000 + 126x) = 0 180x - 540,000 - 126x = 0 54x - 540,000 = 0 54x = 540,000 x = 10,000 units
This should get you through parts (b) and (c) as well... samesituation. Part (d) is slightly different, but give it a stab andsee if you can't work through it. If not, feel free to ask forfollow-up.
Best wishes... Mike

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