Purchase Solution

Question about Leverage and risk

Not what you're looking for?

Ask Custom Question

X Company produces inflatable beach balls, selling 400,000 balls a year. Each ball produced has a variable operating cost of $0.84 and sells for $1.00. Fixed operating costs are $28,000. The firm has annual interest charges of $6,0000, preferred dividends of $2,000, and a 40% tax rate.

a) Calculate the operating breakeven point in units.
b) Use the degree of operating leverage (DOL) formula to calculate DOL
c) Use the degree of financial leverage (DFL) formula to calculate DFL.
d) Use the degree of total leverage (DTL) formula to calculate DTL.

Compare this to the product of DOL and DFL calculated in parts b and c.

Purchase this Solution

Solution Summary

The solution explains how to calculate breakeven point, operating leverage, financial leverage and total leverage.

Solution Preview

X Company produces inflatable beach balls, selling 400,000 balls a
year. Each ball produced has a variable operating cost of $0.84 and
sells for $1.00. Fixed operating costs are $28,000. The firm has
annual interest charges of $6,0000, preferred dividends of $2,000, and
a 40% tax rate.

a) Calculate the operating breakeven point in units.

Breakeven units = Fixed cost/unit contribution margin
= ...

Purchase this Solution


Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Learning Lean

This quiz will help you understand the basic concepts of Lean.