Cantor Products sells a product for $75. Variable costs per unit are $50, and monthly fixed costs are $75,000. Answer the following questions:a. What is the break-even point in units?b. What unit sales would be required to earn a target profit of $200,000?c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage?d. If sales decrease by 30% from that level, by what percentage will profits decrease?
What will be an ideal response?
a. 3,000 units = $75,000/($75 - $50)
b. 11,000 units = ($75,000 + $200,000)/($75 - $50)
c. 1.375 = [11,000 × ($75 - $50)]/$200,000
d. 41.25% = 30% × 1.375
Break-even units = Fixed costs/Unit contribution margin. Target units = (Fixed costs + Target profit)/Unit contribution margin. Degree of operating leverage = Contribution margin/Profit. Change in revenue × Degree of operating leverage = Change in profit.
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