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degree of operating leverage

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Southcoast Oil's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000. Selling price per barrel of oil is $18 and variable costs per barrel are $10.

(a) Determine the breakeven output (in dollars).

(b) Determine the number of barrels of oil that offshore must produce and sell in order to earn a target (operating) profit of $1,500,000.

(c) Determine the degree of operating leverage at an output of 400,000 barrels.

(d) Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Southcoast will incur an operating loss.

Note: Part (d) requires the use of statistical tables.

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I need to see the work for this so I know how to do these problems in the future - thanks.

Southcoast Oil's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000. Selling price per barrel of oil is $18 and variable costs per barrel are $10.

(a) Determine the breakeven output (in dollars).

(b) Determine the number of barrels of oil that offshore must produce and sell in order to earn ...

Solution Summary

This posting offers help with calculating degree of operating leverage.

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