Question

Cantor Products sells a product for \$85. Variable costs per unit are \$35, and monthly fixed...

Cantor Products sells a product for \$85. Variable costs per unit are \$35, and monthly fixed costs are \$235,000.

a. What is the break-even point in units?

b. What unit sales would be required to earn a target profit of \$330,000?

c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage? (Round your answer to 3 decimal places.)

d. If sales decrease by 30% from that level, by what percentage will profits decrease? (Do not round intermediate calculation. Round your answer to 2 decimal places.)

 a. 4,700 units

Explanation:-

 Break-even units = Fixed costs/ unit Contribution margin Break-even units = \$235,000/(\$85 -\$35) Break-even units = \$235,000/\$50 Break-even units = 4,700 units
 b. 11,300 units

Explanation:-

 Target units = (Fixed cost + Target profit) / unit Contribution margin Target units = (\$235,000 +\$330,000)/ (\$85 -\$35) Target units = \$565,000/\$50 Target units =11,300 units
 c. 1.712

Explanation:-

 Degree of operating leverage = Contribution Margin/ profit Degree of operating leverage = 11,300 × (\$85-\$35)/\$330,000 Degree of operating leverage = 11,300 ×\$50/\$330,000 Degree of operating leverage = \$565,000/\$330,000 Degree of operating leverage =1.712
 d. 51.36%

Explanation:-

 Change in profit = change in revenue × degree of operating leverage Change in profit = 30% ×1.712 Change in profit = 51.36%

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