Operation Leverage Ratios
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Air Filter, Inc., sells its products for $6 per unit. It has the following costs:
Rent . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
Factory labor. . . . . . . . . . . . . . . . . . . $1.20 per unit
Executive salaries. . . . . . . . . . . . . . . $89,000
Raw material. . . . . . . . . . . . . . . . . . . $.60 per unit
Separate the expenses between fixed and variable cost per unit. Using this information and the sales price per unit of $6, compute the break-even point.
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Total variable cost changes in direct proportion with a change in activity level. For example total factory labor cost will increase by $1.2 with the increase in production by one unit. Whereas total fixed cost remain ...
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