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Unformatted text preview: operating profit changes by 24.58% ([97,175-78,000]/78,000). Comparing the two, a 24.58% change in EBIT is caused by a 15% change in revenue, so the DOL must be .2458/.15 = 1.64. 6. DFL is calculated as: EBIT/ (EBIT – I). Given the data in the problem, we have: DFL = $10MM/($10MM-$2MM) = 1.25 7. The contribution margin for the product is $16-$11 = $5 (i.e., revenue minus variable cost). Hence, the break-even can be calculated as FC/contribution margin, or $800,000/5 = 160,000. The company covers its fixed operating cost when it sells 160,000 units. 8. Revenue minus EBIT = total operating cost; so total operating costs are $12,780,000. Since $4,780,000 is fixed operating cost, the remainder of $8,000,000 must be variable operating cost. The calculations are: DOL = Sales –VC / EBIT = (18MM-8MM) / 5.22MM = 1.92 DFL = EBIT/EBIT-I = 5.22MM/(5.22- .85MM) = 1.19 CDL = DOL x DFL = 1.92 x 1.19 = 2.28...
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This note was uploaded on 01/06/2012 for the course BUS M 201-1 taught by Professor Jennlarson during the Fall '11 term at BYU.
- Fall '11