Levin Corporation has fixed operating costs of $64,000, variable operating costs

Question

Levin Corporation has fixed operating costs of $64,000, variable operating costs of $6.80 per Degree of operating leverage-Graphical unit, and a selling price of $9.80 per unit. a. Calculate the operating breakeven point in units b. Compute the degree of operating leverage (DOL) using the following unit sales levels as a base: 22,333, 28,333, 40,333. Use the formula given in the chapter. C. Graph the DOL figures that you computed in part (b) (on the y axis) against base sales levels (on the x axis) d. Compute the degree of operating leverage at 21,333 units, add this point to your graph. e. What principle do your graph and figures illustrate? The operating breakeven point is units. (Round to the nearest integ b. The degree of operating leverage for 22,333 units is. (Round to one decimal place.) The degree of operating leverage for 28,333 units is(Round to one decimal place.) The degree of operating leverage for 40,333 units is(Round to one decimal place.) c. Graph the DOL figures that you computed in part (b) (on the y axis) against base sales levels (on the x axis). (Select from the a. er) drop-down menu.)

Explanation / Answer

) Operating Break Even Point:

Break Even Point is such that Gross Profit = Operating Fixed Costs. In other words Operating Profit should be zero.

Thus we get, 9.80 X - 6.80X = 64000 (Here X is the no. of Units)

Thus we get X = 21333 units

2) The Degree of Operating Leverage at 22,333 Units is :

Degree of operating leverage =sales variable costs / ( sales variable costs fixed costs )

=(22333 * 9.8)-(22333 * 6.8) / (22333 * 9.8)-(22333 * 6.8) - 64000

= 66, 999 / (2999) = 22.3

On Simiar Grounds it can be calculated for 28333 and 40333 units as well.

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