1. Offshore Petroleum\'s fixed costs are $2,500,000. Selling price per barrel of
ID: 1178480 • Letter: 1
Question
1. Offshore Petroleum's fixed costs are $2,500,000. Selling price per barrel of oil is $18 and variable costs per barrel are $10.
a. Determine the breakeven output (in dollars).
b. Determine the number of barrels of oil that offshore must produce and sell in order to earn a target (operating) profit of $1,500,000.
c. Determine the degree of operating leverage at an output of 400,000 barrels.
d. Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.
Offshore Petroleum's fixed costs are $2,500,000. Selling price per barrel of oil is $18 and variable costs per barrel are $10. Determine the breakeven output (in dollars). Determine the number of barrels of oil that offshore must produce and sell in order to earn a target (operating) profit of $1,500,000. Determine the degree of operating leverage at an output of 400,000 barrels. Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.Explanation / Answer
(a)
Breakeven output = $2,500,000/($18-$10)=312 500
(b)
Output = 312 500 +$1,500,000/($18-$10)= 500 000
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