Analyzing Break-Even Point, Target Profit Degree of Operating Leverage
Simpson Company produces one golf cart model. A partially complete table of company costs
follows:
Number of golf carts produced and sold Total costs | 600 | 800 | 1,000 |
Variable costs | $ ? | $400,000 | $ ? |
Fixed costs per year | ? | 500,000 | ? |
Total costs | ? | $900,000 | ? |
Cost per unit | |||
Variable cost per unit | ? | ? | ? |
Fixed cost per unit | ? | ? | ? |
Total cost per unit | ? | ? | ? |
Required:
1. Complete the table.
2. Simpson sells its carts for $1,200 each. Prepare a contribution margin income statement for each of the three production levels given in the table.
3. Based on these three statements (and without any additional calculations), estimate Simpson’s break-even point in units.
4. Calculate Simpson’s break-even point in number of units and in sales dollars.
5. Assume Simpson sold 700 carts last year. Without performing any calculations, determine whether Simpson earned a profit last year.
6. Calculate the number of carts that Simpson must sell to earn $65,000 profit.
7. Calculate Simpson’s degree of operating leverage if it sells 850 carts.
8. Using the degree of operating leverage, calculate the change in Simpson’s profit if sales are 10 percent less than expected.
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