BREAKEVEN AND OPERATING LEVERAGE Given the graphs above, calculate the total fix

Question

BREAKEVEN AND OPERATING LEVERAGE

Given the graphs above, calculate the total fixed costs, variable costs per unit, and sales price for Firm A. Firm B's fixed costs are $120,000, its variable costs per unit are $4, and its sales price is $8 per unit. Round your answers to two decimal places.

Fixed costs are $ .

Variable costs per unit are $ .

Sales price per unit is $ .

Which firm has the higher operating leverage at any given level of sales?
-Select-Firm AFirm BItem 4

At what sales level, in units, do both firms earn the same operating profit? Round intermediate calculations to 2 decimal places. Round your answer to the nearest whole number.

units.

Explanation / Answer

Answer :- Fixed Cost for firm A = $80000 (given in Graph)

Sales Per Unit for firm A = Breakeven Revenue/Breakeven Unit

= 206.897/27.586 = $7.5

variable Cost Per Unit for Firm A = Revenue At breakeven - Fixed Cost/No. of unit At Breakeven

= 206.897-80/27.586 = $4.6

Operating Leverage = Contribution/ EBIT Let Suppose No. of Unit is 100000

Comtribution For A = Sales Price - Variable Cost = (7.5-4.6)*100000 = 290000 ,

EBIT = Contribution - Fixed Cost = 290000-210000

Firm B = 400000/280000= 1.43

Contribution For B = (8-4)*100000 = $400000

EBIT = $400000-$120000 = $280000

Operation leverage of Firm B is Better

Calculation Of Breakeven Point Where Operating Profit Is Same

Lets Assume Qty is X

Firm A((Sales Price - Variable Cost)*No, of Units - Fixed Cost) = FirmB(Sales Price - Variable Cost)* NoOf units - Fixed Cost)

(7.5-4.6)X-80000 = (8-4)X-120000

2.9X-80000 =4X-120000

40000 = 1.1X

X = 36363.64 Units

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