Kyle & Ostrowsky Inc., a manufacturer of championship caliber trophies, sells th
ID: 2419356 • Letter: K
Question
Kyle & Ostrowsky Inc., a manufacturer of championship caliber trophies, sells their product for $50 per unit. Variable costs are 60% of the selling price, and comapny has fixed costs that amount to $400,000. Current Sales total 16,000 units.
A. How many units must Kyle & Ostrowsky sell to break even?
B. How much will profits increase (assume no taxes) for each additional unit sold above the break even level?
C. In order to produce a profit of $22,000, Kyle & Ostrowsky must sell what dollar amount of trophies?
D. What is the margin of safety for Kyle % Ostrowsky given their current level of sales?
E. if Kyle & Ostrowsky experience a 10% increase in sales, what will be their change in operating income? You must display and use their degree of operating leverage for credit.
Explanation / Answer
A) Break Even Sales = Fixed cost / contribution per unit
Fixed cost = $400000
Contribution = Sales - Variable cost
Contribution = $800000 (16000units * $ 50 / unit) - $ 480000 (16000units * $ 30) Variable cost = 60% of sales price
contribution per unit = $320000/16000units =$ 20
Break Even Sales = Fixed cost / contribution per unit
= $400000/20
= $20000
c) Sales to earn Desired profit = Fixed cost + Desired Profit/ contribution per unit
= $400000+$22000/20
=21100
D) Margin of safety = Total sales - break even sales
= $ 800000 - $ 20000
= $ 780000
E) Degree of operating levearge = contribution / EBIT
sales =880000
(-) variable cost = 528000
contribution = 352000
(-) Fixed cost = 400000
EBIT = (48000)
The Earnings Before Interest and Tax becomes negative hence it is difficult to calculate the degree of operating leverage
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.