Kyle & Ostrowsky Inc., a manufacturer of championship caliber trophies, sells th
ID: 2419450 • 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= Fixed cost/(Sales-variable) per unit
=400,000/(50-(.6*50))
=400,000/20= 20,000 units
b) Profit increase = Selling price -Variable cost price=50-30=$20
c)No of untis sold=
22,0000=units*(sp-cp)-fixed cost
22,000+400,000=x*20
x=422,000/20=21,100
sales dollars= 21100*50=$1,055,000
d)Margin of safety= (budgeted sales-breakeven sales)/budgeted sales
=(16000-20,000)/16000
=-25%
e)DOL=
=16000*(50-30)/(16000*(50-30]-400000)
=320,000/-80,000
=-4
DOL= % chnage in EBIT/% change in sales
change in operating income =-4*10%=-40%
Degree of operating leverage = sales variable costs/(sales-variabel-fixed)Related Questions
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