Purchase Solution

The Degree of Operating Leverage

Not what you're looking for?

Ask Custom Question

Grey Products has fixed operating costs of $380,000, variable operating costs of $16 per unit, and a selling price of $63.50
per unit. Please refer to the attached document for the required data.

A) Calculate the operating break even point in units.

B) Calculate the firm's EBIT at 9,000, 10,000, and 11,000 units, respectively.

C) With 10,000 units as a base, what are the percentage changes in units sold and EBIT as sales move from the base to the other sales levels used in part B?

D) Use the percentages computed in part c to determine the degree of operating leverage (DOL).

E) Use the formula for degree of operating leverage to determine the DOL at 10,000 units.

Attachments
Purchase this Solution
Solution Summary

This solution provides the required step by step methodology needed to determine the break even point and degree of operating leverage for the given scenario. An Excel attachment file containing the solution is also provided. By clicking directly onto the cells, it is easier to understand the exact calculations which have been conducted.

Solution Preview

Please refer attached file for better clarity of formulas and tables in MS Excel. Expressions typed with the help of equation writer are missing here.

A) Calculate the operating breakeven point in units.
Price=P = $63.50 per unit
Variable cost =V=$16.00 per unit
Fixed Cost=F = $380,000.00
Breakeven point=F/(P-V) = 8,000 units

B) Calculate the firm's EBIT at 9,000, 10,000, and 11,000 units, respectively. ...

Solution provided by:
Lokesh Jain, MSc
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
Graphs and Functions

This quiz helps you easily identify a function and test your understanding of ranges, domains , function inverses and transformations.

Know Your Linear Equations

Each question is a choice-summary multiple choice question that will present you with a linear equation and then make 4 statements about that equation. You must determine which of the 4 statements are true (if any) in regards to the equation.

Solving quadratic inequalities

This quiz test you on how well you are familiar with solving quadratic inequalities.

Geometry - Real Life Application Problems

Understanding of how geometry applies to in real-world contexts

Exponential Expressions

In this quiz, you will have a chance to practice basic terminology of exponential expressions and how to evaluate them.

View More Free Quizzes
Related BrainMass Solutions

  • Degree of operating leverage :sample question

    following: 1.Degree of operating leverage. 2.Degree of financial leverage. 3.Degree of combined leverage. 4.Break-even point in units.

  • The answer to Degree of operating leverage

    The formula is: Degree of operating leverage = Contribution margin/Net operating Income For Old-Fashion Apples, the degree of operating leverage is: Degree of operating leverage = Contribution margin/Net operating Income Degree of operating

  • Break even point, degree of operating leverage,

    174734 Break even point, degree of operating leverage, degree of financial leverage, and degree of combined leverage Use the following information to answer the next four questions: Sales (30,000 units) Variable Costs $150,000 100,800 Contribution

  • Degree of operating leverage, degree of financial leverage, combined leverage, break-even point in units

    100242 Degree of operating leverage, degree of financial leverage, combined leverage, break-even point in units A Company manufactures skates.

  • Break-even point and Degree of Leverage

    What is the degree of operating leverage at 20,000 bags and at 25,000 bags? Why does the degree of operating leverage change as the quantity sold increases? 4.

  • Calculating Operating, Financial & Combined Leverage

    Calculate the degree of operating leverage at this output level. b. Calculate the degree of financial leverage at this level of EBIT. c. What is the degree of combined leverage? a.

  • CVP and leverage

    What is the degree of operating leverage at 20,000 bags and at 25,000 bags? Why does the degree of operating leverage change as the quantity sold increases? d.

  • Degree of combined leverage

    Degree of combined leverage = Degree of operating leverage * Degree of financial leverage =1.42*1.32 = 1.8744 times Interpretation: Degree of combined leverage indicates combined risk.

  • Fastron, Inc.

    Compute Fastron's degree of operating leverage. Degree of operating leverage = q(p - v) q(p - v) - FC Degree of operating leverage = 60,000,000 - 60,000,000(0.40) 60,000,000 - 60,000,000(0.40) - 20,000,000 = 2.25x b.

  • Calculating BEP, operating and financial leverage

    What is the degree of operating leverage at 20,000 bags and at 25,000 bags?Why does the degree of operating leverage change as the quantity sold increases?

View More Related Solutions