BREAKEVEN AND OPERATING LEVERAGE Firm A Revenues and Costs Thousands of Dollars
ID: 2791839 • Letter: B
Question
BREAKEVEN AND OPERATING LEVERAGE Firm A Revenues and Costs Thousands of Dollars Firm B Revenues and Costs Thousands of Dollars) Total Costs Total Costs 280 Total Reven 240 200 160 120 80 40 280 Total Revenues 240 200 160 120 80 40 Breakeven Point (30.240) Breakeven Point 21.053,178.947) I Fixed Costs Fixed Costs 0 10 20 30 40 50 60 Units (Thousands) 0 10 20 30 40 50 60 Units (Thousands) a. 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 $ b. Which firm has the higher operating leverage at any given level of sales? -Select- c. 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. unitsExplanation / Answer
a) From the graph for Firm A
Fixed Costs = 80,000
From the breakeven point, Total Sales = Unit Sales x Sales per unit
=> 178,947 = 21,053 x Sales per unit
=> Sales per unit = $8.50
At break-even point,
Total Revenues = Total Costs = Unit Sales x VC + FC
=> 178,947 = 21,053 x VC + 80,000
=> VC = $4.70
b) Firm B has higher operating level given higher fixed cost.
c) Operating profit for A = Unit Sales x (8.50 - 4.70) - 80,000
For B, operating profits = Unit Sales x (8 - 4) - 120,000
=> 3.80 x Unit Sales - 80,000 = 4.0 x Unit Sales - 120,000
=> Unit Sales = 200,000
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