Question

Chapter 3: Applying Excel: Exercise (Part 2 of 2) 2. Change all of the numbers in the data area of your worksheet so that it looks like this: 1 Chapter 3: Applying Excel 3 Data 4 Unit Sales 5 Selling price per unit 6 Variable expenses per unit 7 Fixed expenses 40,000 units $40 per unit $16 per unit $720,000 If your formulas are correct, you should get the correct answers to the following questions. (a) What is the break-even in dollar sales? Break-even in dollar sales (b) What is the margin of safety percentage? Margin of safety Margin of safety % percentage (c) What is the degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage 3. Using the degree of operating leverage and without changing anything in your worksheet, calculate the percentage change in net operating income if unit sales increase by 20%. Percentage increase in net operating income

Answer 1

1)	a)
		Contribution Margin Per Unit = Sales price - variable cost per unit
		= $40-16
		= $24 per unit
		Break-even Point In-Unit = Fixed Cost/ Contribution Margin Per Unit
		= $720000/24
		=30000 units
		In dollars = $30000*40
		=$1200000
	b)	Margin of safety =(40000-30000)/40000
		=25%
	c)	Sales	$         16,00,000
		Less:
		Variable cost	$           6,40,000
		Contribution margin	$           9,60,000
		Less:
		Fixed Cost	$           7,20,000
		Operating Income	$           2,40,000
		Degree of operating leverage = Contribution margin / operating income
		=$960000/240000
		=4
	3)	% change in operating income = 20%*4
		=80%