Mo & Chris\'s Delicious Burgers, Inc., sells food to Military Cafeterias for $29
ID: 2653223 • Letter: M
Question
Mo & Chris's Delicious Burgers, Inc., sells food to Military Cafeterias for $29 a box. The fixed costs of this operation are $132,000, while the variable cost per box is $17.
What is the break-even point in boxes?
Calculate the profit or loss on 14,000 boxes and on 29,500 boxes. (Input all amounts as positive values. Omit the "$" sign in your response.)
What is the degree of operating leverage at 13,000 boxes and at 29,500 boxes? (Enter only numeric value rounded to 2 decimal places.)
If the firm has an annual interest expense of $10,700, calculate the degree of financial leverage at both 13,000 and 29,500 boxes.(Enter only numeric value rounded to 2 decimal places.)
What is the degree of combined leverage at both sales levels? (Enter only numeric value rounded to 2 decimal places.)
Mo & Chris's Delicious Burgers, Inc., sells food to Military Cafeterias for $29 a box. The fixed costs of this operation are $132,000, while the variable cost per box is $17.
Explanation / Answer
a. at breakeven, costs = revenues. there are no profit or no loss.
let the no. of boxes be "x". total revenue = 29x
total variable cost = 17x. total fixed cost = 132,000
so, 17x+132,000 = 29x
12 x = 132,000 or x = 11,000 boxes
b. 14, 000 boxes
Total revenue = 14,000*29
cost = 14,000*17+132,000
profit = revenue - costs = 14,000*29 - (14,000*17)-132,000
= 14,000*12 - 132,000 = 36,000 profit
29,500 boxes:
profit = revenue - costs = 29,500*29 - (29,500*17) - 132,000
= 29,500*12 - 132,000 = 222,000 profit
c. Operating leverage = fixed costs/total costs
fixed costs = 132,000. varibale costs for 13,000 boxes = 13,000*17 = 221,000. total cost = 353,000
Operating leverage for 13,000 boxes = 132000/353000 = 37.39%
variable costs of 29500 boxes = 29500*17 = 501500. total cost = 633500. operating leverage = 132000/633500 = 20.83%
d. financial leverage = financial costs/total costs. interest expense = 10,700
total cost of 13,000 boxes (as calculated earlier) = 353,000
financial leverage of 13,000 boxes= 10700/353000 = 3.03%
total cost of 29,500 boxes (as calculated earlier) = 633500
financial leverage of 29,500 boxes = 10700/633500 = 1.69%
e. combined leverage of 13,000 boxes = operating+financial leverage = 37.39%+3.03% = 40.42%
combined leverage of 29,500 boxes = operating+financial leverage = 20.83%+1.69% = 22.52%