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Managerial Finance Question

Sales (30,000 units) $150,000
Variable costs 100,800
Contributions margin $ 49,200
Fixed manufacturing costs 24,000
Operating Income $ 25,200
Interest 18,000
Earnings Before Taxes $ 7,200
Taxes (30%) 2,160
Net Income $ 5,040
Shares Outstanding 600

This firm's break-even point is:
A) 4,800 units
B) 14,634 units
C) 7,142 units
D) 18,000 units

The Degree of Operating Leverage (DOL) is
A) 1.58x
B) 1.95x
C) 3.50x
D) 1.40x

The Degree of Financial Leverage (DFL) is
A) 3.50x
B) 1.40x
C) 1.95x
D) 1.58x

The Degree of Combined Leverage (D.C.L.) is
A) 3.08x
B) 5.45x
C) 2.73x
D) 6.83x

Solution Preview

This firm's break-even point is
A) 4,800 units
B) 14,634 units
C) 7,142 units
D) 18,000 units

Breakeven point = Fixed manufacturing costs/Contribution Margin per unit
= 24,000/(49,200/30,000)
= 14,634 units

The Degree of Operating Leverage (DOL) ...

Solution Summary

This solution is comprised of a detailed explanation and calculation to calculate breakeven point, degree of operating leverage, financial leverage, and combined leverage.

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