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.)

Homework Answers

Answer #1
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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