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Checkpoint- Break Even Analysis

# Checkpoint- Break Even Analysis - DOL(20,000 = 20,000(10...

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Healthy foods Inc. sells 50-pound bags of grapes to the military for \$10 a bag. The fixed costs of this operation are \$80,000, while the variable costs of the grapes are \$.10 per pound. A.What is the break-even point in bags? Use the formula Break-even point = Fixed cost/unit contribution margin Break-even point = 80000/ (10 - \$0.10 x 50) = 16000 bags B.Calculate the profit or loss on 12,000 bags and on 25,000 bags? Consider 12,000 bags Total Revenue = 12,000 * 10 = 120,000 Total Cost = 80,000 + 0.1 * 50 * 12,000 = 80,000 + 60,000 = 140,000 Total loss/profit = 120,000 - 140,000 = -20,000 ‘-‘sign indicate that there have loss Total loss = 20,000 Consider 25,000 bags Total Revenue = 25,000 *10 = 250,000 Total Cost = 80,000 + 0.1 * 50 * 25,000 = 80,000 + 125,000 = 205,000 Total Profit = 250,000 - 205,000 = 45,000 C.W hat is the degree of operating leverage at 20,000gs and at 25,000 bags? DOL (20,000) = [Quantity x (Selling Price - Variable Cost)] / [Quantity x (Selling Price - Variable Cost) - Fixed Cost]

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Unformatted text preview: DOL (20,000) = 20,000 (10 - 5)/ [20,000(10 - 5) - 80,000 = 5 times DOL (25,000) = 25,000 (10 -5) / [25,000(10 - 5) - 80,000] = 2.78 times D. Why does the degree of operating leverage change as the quantity sold increases? When quantity sold increases, DOL get decrease because firm is now operating at a larger profit . If a healthy food has an annual interest expense of \$10,000, calculate the degree of financial leverage at both 20,000 and 25,000 bags. DFL (20,000) =EBIT / (EBIT - Interest) DFL = 20,000/ (20,000 - 10,000) = 2 times DFL (25,000) =EBIT / (EBIT - Interest) DFL (25,000) = \$45,000 / (\$45,000 - \$10,000) = 1.29 times E.What is the degree of combined leverage at both sales levels? DCL = DOL x DFL DCL (20,000) = 5 x 2 = 10 times DCL (25,000) = 2.78 x 1.29 = 3.57 times...
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Checkpoint- Break Even Analysis - DOL(20,000 = 20,000(10...

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