Question

Are my answers right?

Consider the case of Free Spirit Industries: Free Spirit Industries is considering a project that will have fixed costs of $12,000,000. The product will be sold for $32.50 per unit, and will incur a variable cost of $10.75 per unit. Given Free Spirit's cost structure, it will have to sell 551,724 units to break even on this project (Que). Free Spirit Industries's marketing sales director doesn't think that the market for the firm's goods is big enough to sell enough units to make the company's target operating profit of $15,000,000. In fact, she believes that the firm will be able to sell only about 175,000 units. However, she also thinks the demand for Free Spirit's product is relatively inelastic, so the firm can increase the sale price. Assuming that the firm can sell 175,000 units, what price must it set to meet the CFO's EBIT goal of $15,000,000? $173.29 per unit $206.30 per unit $189.80 per unit $165.04 per unit What affects the firm's operating break-even point? Several factors affect a firm's operating break-even point. Based on the scenarios described in the following table, indicate whether these factors would increase, decrease, or leave unchanged a firm's break-even quantity--assuming that only the listed factor changes and all other relevant factors remain constant. Increase Decrease No Change The firm's fixed costs increase. The product's sales price increases. The firm's tax rate increases. When other things are held constant, the higher a firm's operating leverage, the higher will be its business risk.

Answer 1

rate positively ..

Ans 1		Given that -
	i	Sales price =		32.5
	ii	Variable cost		10.75
	iii=i-ii	Contribution margin =		21.75
	iv	fixed cost=		12000000
	v=iv/iii	Break even unit =		551724
		Ans =		551724
Ans 2
		Fixed cost=		12000000
		required profit=		15000000
		Total		27000000
		Lets assume sales price be x
		therefore
		x*175000-10.75*175000=			27000000
		x=			165.04
		Ans =			165.04
Ans 3		Details			Ans
		increase in fixed cost			Increase
		Incresae in sales price			Decresae
		Increase in tax rate			No change
Ans 4		Business risk will be higher if the oprating levage is higher.