BREAKEVEN AND OPERATING LEVERAGE

a. Given the following graphs, calculate the total fixed costs, variable costs per unit, and sales price for Firm A. Firm B’s 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?AppendixLO1

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Cengage Learning 2015 Firm A Revenues and Costs (Thousands of Dollars) 280 240 Total Revenues Total Costs Firm B Revenues and Costs (Thousands of Dollars) 280 200 200 Break-Even Point 160 160 120- 80 40 0 10 20 25 30 40 Total Revenues Total Costs Break-Even Point Fixed Costs 120 Fixed Costs 80 40 60 0 10 20 20 50 Units (Thousands) 30 40 50 60 Units (Thousands)