12-5.(Operating leverage) Rocky Mount Metals Company manufactures an assortment

Question

12-5.(Operating leverage) Rocky Mount Metals Company manufactures an assortment of wood-burning stoves. The average selling price for the various units is $500. The associated variable cost is $350 per unit. Fixed costs for the firm average $180,000 annually. a. What is the break-even point in units for the company? b. What is the dollar sales volume the firm must achieve to reach the break-even point? c. What is the degree of operating leverage for a production and sales level of 5,000 units for the firm? (Calculate to three decimal places.) d. What will be the projected effect on earnings before interest and taxes if the firm

Explanation / Answer

a)QB=F/P-V = $180,000 /$150 =1,200 units b)SB=F/1-(VC/S) = $180,000/1-0.70 =$600,000 c)(20%) x (1.316)=26.32%

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