Question

Harmony sells a product for $50 per unit. Variable costs per unit are $18, and monthly fixed costs are $252,800. a. What is the break-even point in units? b. What unit sales would be required to earn a target profit of $198,400? c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage? (Round your answer to 2 decimal place.) d. If sales increase by 40% from that level, by what percentage will profits increase? (Round final answers to two decimal places.)

Answer 1

• Requirements

A	Sale price per unit	$50
B	Variable cost per unit	$18
C = A - B	Contribution margin per unit	$32
D	Fixed Cost	$252,800
E = D/C	Break even in units	7900	Answer [a]

A	Target profits	$198,400
B	Fixed Cost	$252,800
C = A+B	Total contribution margin	$451,200
D	Contribution margin per unit	$32
E = C/D	Units required to attain target profits	14100	Answer [b]
F = C/A	Degree of operating leverage	2.27	Answer [c]
G	Increase in sale %	40%
H = F x G	Profit will increase by %	90.80%	Answer [d]