bamboo manufacturing sells its finished product for an average of 35& per unit with a variable cost per unit of 21$ . the company has fixed operating costs of 1,050,000 $
a- calculate the firm's operating breakeven point in units.
b- calculate the firms operating breakeven point in dollars .
c- using 100,000 units as a base, what is the firm's degree of operating leverage ?
A- calculate the firm's operating breakeven point in units. b- calculate the firms operating break?
- Posted:
- 3+ months ago by alirahhal
- Topics:
- bamboo, break, point, company, product, sell, cost, finished, fixed
Details:
Answers (1)
breakeven point is either the number of units sold or sales revenues needed to get a profit equal to zero.
So, in your problem:
a) X * (35 -21) - 1,050,000 = 0 => X = 75,000 (you need to sell 75,000 units in order to breakeven)
b) 75000* 35 = 2,625,000 USD (you need to have revenues of 2,625,000 USD in order to break even
c) [100,000 *(35-21)]/[100,000*(35-21)-1,050,000] = 4 (or 400%) This means that a 10% increase in revenues will yield a 62.6% increase in operating income (10% * 6.26).
In your example, if you increase the sales by 10% to 110,000 units your operating profit will go up to USD 490,000 which is 40% higher than the USD 350,000 profit you get when you sell 100,000 units
I hope this helps
sorry for the confusion: (correct) "This means that a 10% increase in revenues will yield a 40% increase in operating income (10% * 4)."