You are given the following information. Output level 10,000 units Total fixed c

Question

You are given the following information.

Output level 10,000 units
Total fixed cost RM45,000
Variable cost per unit RM 6.00
Interest RM3,000
Total asset RM20,000
Total asset turnover 6


** Total asset turnover = sales / Total asset


Based on the above data, you are required to :-

Questions:
a) Calculate the degree of operating leverage (DOL)
b) Calculate the degree of financial leverage (DFL)
c) Calculate the degree of combined leverage (DCL)
d) Calculate the breakeven in units (QBE)
e) Calculate the breakeven in dollar (SBE)

Explanation / Answer

sales / Total asset =6 sales =RM20,000 *6=RM120,000 EBIT =RM120,000-6.00*10000-RM45,000 =RM15000 a) Degree of Operating Leverage (DOL)= (EBIT + Fixed costs) / EBIT =(15000 +45,000)/15000 =4.0 b) Degree of Financial Leverage (DFL)= EBIT / ( EBIT - Total Interest expense ) =15000/(15000 -3,000 ) =1.25 c) Degree of combined leverage (DCL) =DOL * DFL =4.0*1.25 =5 d) contribution margin =RM120,000/10000-6=RM6 break-even point=RM45,000/RM6 =7500 units e) breakeven in dollar =7500*120,000/10000 =RM90,000 =94299.186 units

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