BREAKEVEN AND OPERATING LEVERAGE a. Given the following graphs calculate the total fixed costs

QUESTION

BREAKEVEN AND OPERATING LEVERAGEa. Given the following graphs, calculate the total fixed costs, variable costs per unit, and sales price for Firm A. Firm Bs fixed costs are $120,000, its variable costs per unit are $4, and its sales price is $8 per unit.b. Which firm has the higher operating leverage at any given level of sales? Explain.c. At what sales level, in units, do both firms earn the same operating profit?
(a) Total fixed cost for firm A (seen from graph) 80000 Variable cost at 25000 units was (200000-80000) i.e. 120000.Per unit is 120000/25000 = 4.80 per unit Sale price per unit 200000/25000 = 8 per unit (b) Firm B has higher operating leverage (as it has higher level of FIXED COSTS) (c)

rence point is Computed as (Difference in FIXED COST) / (Difference in CONTRIBUTION PER UNIT)= (120000-80000)/ (4-3.20)=40000/0.80 = 50000 units At this level both firms earn same profit of Rs. 80000

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION