Homework Answers
Break Even Point = Fixed cost/Contribution %
$500000 = $150000/ Contribution %
Contribution % = 30%
Increase in sale = $500000 * 30% = $150000
New fixed cost = $150000 + $30000 = $180000
New BEP = $180000/30% = $600000
Increase in BEP = $100000/$500000 = 20%
(a) point is True i.e Increase in BEP by 20%
Profit Increase :-
(Increase Sale * Contribution %) - Increase Fixed cost
($150000 * 30%) - $30000
$45000 - $30000 = $15000
(b) point is true i.e. Profit increase by $15000
Degree of Operating Leverage:-
Contribution Margin/operating income
Contribution Margin = $650000 * 30% = $195000
Operating Income = $15000
DOL = $195000/$15000 = 13
Option (c) is False
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