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Unformatted text preview: tsarevariableandthereforecanbeavoided. OperatingincomeunderOption1=$45Q ­‑$1,305 OperatingincomeunderOption2=$30Q FindQsuchthat$45Q ­‑$1,305=$30Q $15Q=$1,305 Q=87   87isthemathematicalpointofindifference. Option1:$125(87) ­‑$80(87) ­‑($435 × 3)=$2,610 Option2:$125(87) ­‑$80(87) ­‑$15(87)=$2,610 a.ForQ>87,say,88, Option1givesoperatingincome=$45×88 ­‑$1,305=$2,655better    3.     4. Option2givesoperatingincome=$30×88=$2,640 RothmanwillpreferOption1. b.ForQ<87,say,86, Option1givesoperatingincome=$45×86 ­‑$1,305=$2,565 Option2givesoperatingincome=$30×86=$2,580better RothmanwillpreferOption2. Degreeofoperatingleverage = CM÷OperatingIncome  UnderOption1,thetotalCM=$45 × 150units = $6,750 OperatingIncome = $6,750 ­‑$1,305=$5,445 TheDegreeofOperatingLeverage(Opt1) = $6,750÷$5,445=1.24  UnderOption2,thetotalCM=OI = $30 × 150...
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This document was uploaded on 02/04/2014.

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