Question

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.)**

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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