Part Il(2 problems) Please show your computationstorecelve fll credit. 1,. Canto

Question

Part Il(2 problems) Please show your computationstorecelve fll credit. 1,. Cantor Products sells a product forS73 Variable costs per unit are $50 and monthly fixed costs are $75.000. Answer the following questions: (30 points) a. What is the break-even point in units? b. What unit sales would be required to earn a target profit of $200,000? ^^/Qin Raio z unit cm -25 Contribution -83 2666.66 c. Assume they achieve the level of sales required in part b, what is the degree of operating DOL- Corffibutio man tete I ?. ?? 2 666.66 X75 leverage? 75,000 .375 1.325 d. If sales decrease by 30% from that level, by what percentage will profits decrease? ? /w? tire It will decreases by 201

Explanation / Answer

(a) Break even point = fixed cost/ contribution per unit

Contribution per unit= selling price - variable cost

So, contribution = 75-50 = 25

Given, fixed cost. = 75,000

Break even point . = 75,000/25

So, B.E.P units. = 3,000 units

b) sales to achieve target profit:-

Given, target profit. = $2,00,000

Target sales. = ( Fixed cost + target profit) / contribution per unit

Target sales = (75,000+2,00,000)/ 25

Target sales = 11,000 units

(c) computation of degree of operating leverage:-

Degree of operating leverage = contribution/ Net operating income

Degree of operating leverage = 2,75,000/2,00,000

Degree of operating leverage = 1.375

(d) Effect on profit, if sales decrease by 30%:-

= Degree of operating leverage * percentage of sales decrease

= 1.375* 30%

= 41.25%

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