Intro Consider a new project proposal. Unit sales are expected to reach 15,000 per year, the...

Question

Question

Answer 1

Answer #1

Solution:-

Part 1:

Contribution= {(selling price-variable cost)*no. of units}= (90-40)*15,000 = $750,000

Degree of operating leverage = Contribution/(Contribution-fixed costs) = 750,000/(750,000-40,000) = 1.06 times

Part 2:

% change in sales= -4,000/15,000 = -26.67%

Degree of operating leverage (DOL) = %change in EBIT/% change in sales

% change in EBIT = DOL* % change in sales

% change in EBIT = 1.06*-26.67% = -28.27%

Answer 2

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