# Doc1 - 15-12A(Break-even point You are a hard-working...

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15-12A. ( 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 Return on Operating Assets = Net Operating Income = \$20,000,000 × 25% = \$5,000,000 DOL = Contribution Margin = \$5,000,000 × 4 = \$20,000,000 Since Net Operating Income = Contribution Margin – Fixed Costs Fixed Costs = \$20,000,000 - \$5,000,000 = \$15,000,000 Unit Contribution Margin = \$20,000,000 / 10,000,000 = \$2 Breakeven Point in Units = Breakeven Point in Units = \$15,000,000 / \$2

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= 7,500,000 units 15-13A. ( 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
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Doc1 - 15-12A(Break-even point You are a hard-working...

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