CVP question
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15.12.A
You are a hard-working analyst in the office of financial operations for a manufacturing firm that produces a single product. You have developed the following cost structure information for this company. All of it pertains to an output level of 10 million units.
Return on operating assets = 25%
Operating asset turnover = 5 times
Operating assets = $20 million
Degree of operating leverage = 4 times
a) Operating profit margin
b) Sales level associated with given output level
c) EBIT
d) Revenue before fixed cost
e) Total variable cost
f) Total fixed cost
g) Define selling price and variable per unit
h) Break-even point
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Solution Summary
The solution explains how to calculate the required variables using CVP concepts
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a) Operating profit margin
Return on operating assets = Operating Income/Operating Assets
Operating Income = Return on operating assets X Operating Assets
= 25%X20 = $5 million
Operating Asset Turnover = Sales/Assets
Sales = Operating Asset Turnover X Assets = 5X20 = $100 million
Operating profit margin = Operating Income/Sales = 5/100=5%
b) ...
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