Calculate the operating breakeven point in units. Calculate the firm\'s EBIT at

Question

Calculate the operating breakeven point in units. Calculate the firm's EBIT at 13,000, 14,000, and 15,000 units, respectively. With 14,000 units as a base, what are the percentage changes in units sold and EBIT as sales move from the base to the other sales levels used in pan (b)? Use the percentages computed in pan (c) to determine the degree of operating leverage (DOL). Use the formula for degree of operating leverage to determine the DOL at 14.000 units The operating breakeven point is The EBIT for the 13,000 units level is The EBIT for the 14,000 units level is The EBIT for the 15,000 units level is With 14,000 units as a base, the change in sales as a percentage for the 13,000 units level is With 14,000 units as a base, the change in sales as a percentage for the 15,000 units level is With 14,000 units as a base, the change in EBIT as a percentage for the 13,000 units level is With 14,000 units as a base, the change in EBIT as a percentage for the 15.000 units level is The degree of operating leverage for the 13,000 units level is The degree of operating leverage for the 15,000 units level is The degree of operating leverage for the 14,000 units level is

Explanation / Answer

a. operating break even point = fixed cost/ selling price - variable cost

= 389000 / (63.57 - 15.36) = 8069 units

b. Assumed that the fixed operating costs does not include interest costs

c.

with 14000 units as base the change in sales at 13000 units = 889980-826410/889980 = 7.14%

with 14000 units as base the change in sales at 15000 units = 889980-953550/889980 = 7.14%

with 14000 units as base the change in EBIT at 13000 units = 285940-237730/ 285940 = 16.86%

with 14000 units as base the change in EBIT at 15000 units = 334150- 285940 / 285940 = 16.86%

d. Degree of operating leverage = % change in EBIT/ % change in sales

The degree of operating leverage for 13000 units = 16.86 / 7.14 = 2.36

The degree of operating leverage for 15000 units = 16.86 / 7.14 = 2.36

e. The degree of operating leverage for 14000 units = 16.86 / 7.14 = 2.36

Particulars 13000 units 14000 units 15000 units Sales Revenue (units*SP per unit) $826410 $889980 $953550 Less: Variable cost (units * VC per unit) $199680 $215040 $230400 Less: Fixed operating costs $389000 $389000 $389000 EBIT $237730 $285940 $334150

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