5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of r

Question

5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $19,000 and at that price, Thad estimates 100 units would be sold each year. The variable cost to produce and sell the cycles would be $13,300 per unit. The annual fixed cost would be $285,000. a. What is the break-even in unit sales? Break-even in unit sales b. What is the margin of safety in dollars? Margin of safety in dollars c. What is the degree of operating leverage? (Round your answer to 2 decimal places.) egree of operating

Explanation / Answer

a) Break even (units)= fixed expense/ contribution margin per unit                                  = 285,000/(19000-13,300) 50 units b) Margin of ssfety = actual sales - sales at break even point                               = (100 - 50) 50 *19000 950000 answer c) Degree of operating leverage = contribution /net income                                                       = ( 5700*100)/(570,000-285000) 2.00 d) contribution (15000-13300)*100= 170000 less:Fixed expense -266,000 Net operating loss -96000

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