15-13A. (Break-even point and operating leverage) Allison Radiosmanufactures a c
ID: 2771021 • Letter: 1
Question
15-13A. (Break-even point and operating leverage) Allison Radiosmanufactures 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 forthese 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?540,000
b. What is the dollar sales volume the firm must achieve inorder to reach the break-even
point? $3,600,000
c. What would be the firm’s profit or loss at thefollowing units of production sold:
12,000 units? 15,000 units? 20,000 units?
12,000 units =$2,160,000-540,000-1,512,000=$108,000
15,000 units =$2,700,000-540,000-1,890,000= $270,000
20,000 units=$3,600,000-540,000-2,520,000=$540,000
d. Find the degree of operating leverage for the production andsales levels given in part (c).
12,000 units =12,000(2,160,000-1,512,000)/12,000(2,160,000-1,512,000)-540,000
15,000 units =15,000(2,700,000-1,890,000)/15,000(2,700,000-1,890,000)-540,000
20,000 units =20,000(3,600,000-2,520,000)/20,000(3,600,000-2,520,000)-540,000
Sales levels
12,000 units = $2,160,000
15,000 units = $2,700,000
20,000 units = $3,600,000
Explanation / Answer
a. The break even point in units is 540,000/(180-126) = 10,000units. b. The dollar sales volume is 10,000*180 = $1,800,000 c. The profit/loss at 12000 units: 12,000*(180-126)-540,000 = 108,000 15000 units: 270,000 20000 units: 540,000 d. Degree of operating leverage at 12000 units: (12,000*(180-126)) / (12,000*(180-126) - 540,000) =6 15000 units: 3 20000 units: 2 Sales level at 12000 units: 2,160,000 15000 units: 2,700,000 20000 units: 3,600,000
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