Question

Degree of operating leverage—Graphical Levin Corporation has fixed operating costs of 580,000, variable operating costs of 96.60 per unit, and a selling price of 59.50 per unit a. Calculate the operating breakeven point in units. b. Compute the degree of operating leverage (DOL) using the following unit sales levels as a base: 27,667, 31.667, 39,667 Use the formula given in the chapter c. Graph the DOL figures that you computed in part (b) (on they axis) against base sales levels (on the x axis). d. Compute the degree of operating leverage at 26,667 units; add this point to your graph. 8. What principle do your graph and figures illustrate? a. The operating breakeven point is units (Round to the nearest integer) Enter your answer in the answer box and then click Check Answer 6 Pants remaining Clear All Check Answer

Answer 1

a) Operating Breakeven Point in units: = Operating Fixed Cost / Contribution per unit = $80000/ ($9.60 - $6.60) = $80000/ ($3.00) = 26,667 units b) &d) Degree of Operating Leverage: = Contribution Margin / Operating Profit Units Level Particulars 26,667 27,667 31,667 39,667 Sales @9.6 per unit $2,56,003.20 $2,65,603.20 $3,04,003.20 $3,80,803.20 Less: Variable cost @6.60 per unit $1,76,002.20 $1,82,602.20 $2,09,002.20 $2,61,802.20 Contribution Margin $80,000.00 $83,000.00 $95,000.00 $1,19,000.00 Less: Fixed Cost $80,000.00 $80,000.00 $80,000.00 $80,000.00 Operating Profit $0.00 $3,000.00 $15,000.00 $39,000.00 Degree of Operating Leverage 27.67 6.33 3.05 c) Graph for DOL of above: Degree of Operating Leverage(DOL) 30.00 25.00 20.00 15.00 Degree of Operating Leverage(DOL) 10.00 5.00 0.00 26,667 27,667 31,667 39,667 Operating Leverage at break even units is infinity (--). So, will not be shown in graph.