Purchase Solution

Findind break even sales

Not what you're looking for?

Ask Custom Question

#1
Break-even point) 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.
Using this information, find the break-even point in units of output for the firm.
Return on operating assets = 25%
Operating asset turnover = 5 times
Operating assets = $20 million
Degree of operating leverage = 4 times

#2
(Break-even point and operating leverage) Allison Radios manufactures a complete line of radio and communication equipment for law enforcement agencies. The average selling price of its finished product is $180 per unit. The variable cost for these same units is $126. Allison Radios incurs fixed costs of $540,000 per year.
a. What is the break-even point in units for the company?
b. What is the dollar sales volume the firm must achieve in order to reach the break-even point?
c. What would be the firm's profit or loss at the following units of production sold: 12,000 units? 15,000 units? 20,000 units?
d. Find the degree of operating leverage for the production and sales levels given in part (c).

Purchase this Solution

Solution Summary

There are two problems. Solutions explains the steps to determine break even sales and degree of operating leverage.

Solution Preview

Please refer attached file for complete solution. Formulas typed with the help of equation writer may be missing here.

Solution:
Return on operating assets=25.00%
Operating asset turnover=5
Operating assets=20 million
Degree of operating leverage=4
Units Sold=10 million

Sales = operating asset turnover*operating assets=$100 millions
Profit =operating assets*return= $5 millions
Average Sale Price=Sales/Total units sold=$10 dollars

We know that
Degree of operating leverage is given by
DOL = Q*C/(Q*C-F)
Here DOL =4, Q=10million, C is contribution margin per unit, F is Fixed cost
Putting these values in formula, we get following ...

Solution provided by:
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution


Free BrainMass Quizzes
Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

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.

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.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Basics of corporate finance

These questions will test you on your knowledge of finance.