Question

Healthy Foods Inc. sells 40-pound bags of grapes to the military for $15 a bag. The fixed costs of this operation are $105,000, while the variable costs of grapes are $0.20 per pound.

a. What is the break-even point in bags? (Round your answer to 2 decimal places.)
  

b. Calculate the profit or loss (EBIT) on 14,000 bags and on 40,000 bags.
  

c. What is the degree of operating leverage at 28,000 bags and at 40,000 bags? (Round your answers to 2 decimal places.)
  

d. If Healthy Foods has an annual interest expense of $11,000, calculate the degree of financial leverage at both 28,000 and 40,000 bags. (Round your answers to 2 decimal places.)
  

e. What is the degree of combined leverage at both 28,000 and 40,000 bags? (Round your answers to 2 decimal places.)
  

Answer 1

Ans (a).

Break even point of Healthy food inc is 15000 bags, means healthy food inc has to sell 15000 bags for getting break even.

Ans.(b).

Ans (6) Calculation ay 영 EBIT . Particulas 14,000 Bags. Sales @$15 pes Bag. $2,10,000 (14,000 x $ 15). 40,000 Bags $6,00,00 190,000 x $15) Lev> Variable cost. $112ono $8 per Bag (un found 14 ovo X$8) $0.2o) $3,20,000 (40,600x$8). A Contibution. 98,000 2,89ers lwy o> fixed cort. ($ 105,ooo) Is 105,0) EBIT (Profit orien) tay. 7ono Profil lastno 9 2 2 2

Loss of $7000 at selling of 14000 bags and profit of $175000 at selling of 40000 bags.

Ans (c).

fins 28,000 Bags 40,000 Bags. Sales @ $ $ IS P. Bage 4,20,000 6, apro ($ 15 X 28,000). C$ IS x 40,000). Less: Variable cost. $2,24,000 $3,20,000 ( @$8 per Bage. {$8*28pms). ($8X40,unne) contribution oz $ 196,000 $.2780,410 Leo: fixed cost $105,ooo $105,000 EBIT $.91000 17 sao Degree of operating levnage Ebbt contributi contribution EBIT EBIT. $ 2,80,0vo Begree of operating levnage $196,000 $91,000 - Zas $ 175, aro tience Degree of operating courage et at 28000 bags 2.15 at 40 oro bags 1.6.

Degree of operating leverage  

at 28000 bags - 2.15

at 40000 bags -1.6

Ans (d).

Ans: D. Degree of finalcial Tourage= EBT Learning by lese Tone) EBIT Intrest EBI - EBLT EBI (28000 bags) = (91000 - 11,000) $80.pro. EBT ( 40 po bags) = (17Spod- 14000) = $1640w Degree of financial louzage ( 28.000 Baga) 2 gior 80,000 1013. Deople of financial Lovrage Luogooo Bage) = las, oro 164,000 1.06.

Degree of financial leverage at 28000 bags - 1.13

Degree of financial leverage at 40000 bags -1.06

Ans (e).

PAGE Any: (e) Degree of combined lounage (DCL)- DOL XDAL. DOL= Depee of operating Levsage. DEL = Degree of financial lomage DCL 2 Degree of combined Lennage. 6 forg Det er 28, ove Bags) : 2-ISX.1•13 2 & 2.42 Ś ser DCL (at 40,000 Bags) = 1.6 x 4 • 06. = 1.69.

​​​​​​Degree of Combined leverage at 28000 bags-2.42

Degree of Combined leverage at 40000 bags - 1.69