Question

Question 5 (1 point) The Poseidon Swim Company produces swim trunks. The average selling price for one of their swim trunks is $66.48. The variable cost per unit is $24.45, Poseidon Swim has average fixed costs per year of $8,795. Assume that current level of sales is 391 units. What will be the resulting percentage change in EBIT if they expect units sold to changes by 9.4 percent? (You should calculate the degree of operating leverage first). (Write the percentage sign in the "units" box). Round the answer to two decimal places. Your Answer: Answer units

Answer 1

first let us know the EBIT at given level of sales;

Sale revenue ($66.48*391 units)	$25,993.68
less; variable cost ($24.45*391)	(9,559.95)
contribution	$16,433.73
less;fixed costs	(8,795)
EBIT	$7,638.73

Degree of operating leverage = contribution / EBIT

=>$16,433.73 / 7,638.73

=>2.1513694 times.

percentage change in EBIT if units sold change by 9.4% => percentage change * DOL

=>9.4%*2.1513694

=>20.22%.