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Degree of operating leverage Grey Products has fixed operating costs of $ 382 comma 000, variable...
Degree of operating leverage Grey Products has fixed operating costs of $ 382 comma 000, variable operating costs of $ 15.93 per unit, and a selling price of $ 63.05 per unit. a. Calculate the operating breakeven point in units. b. Calculate the firm's EBIT at 11 comma 000, 12 comma 000, and 13 comma 000 units, respectively. c. With 12 comma 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 12 comma 000 units.
a. The operating breakeven point is nothing units. (Round to the nearest integer.)
Solutions
Expert Solution
| a.Operating break even point = Fixed costs/(Selling price per unit - variable costs per unit) | |||
| =382,000/(63.05-15.93) | |||
| 8106.961 | units | ||
| b.Units | 11,000 | 12,000 | 13,000 |
| Contribution Margin i.e. Sales - variable costs | 518,320 | 565,440 | 612,560 |
| Less: Fixed costs | 382,000 | 382,000 | 382,000 |
| EBIT | 136,320 | 183,440 | 230,560 |
| % change in Sales | -8.33% | 8.33% | |
| % change in EBIT | -25.69% | 25.69% | |
| DOL = % change in EBIT/% Change in Sales | 3.08242477 | 3.08242477 | |
| e.DOL = Contribution margin/EBIT | 3.08242477 |
jeff jeffy answered 1 year agoRelated Solutions
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