1. Check your worksheet by changing the fixed expenses to $270,000. If your worksheet is operating properly, the degree of operating leverage should be 10. If you do not get this answer, find the errors in your worksheet and correct them. How much is the margin of safety percentage? Did it change? Why or why not? 2. Enter the following data from a different company into your worksheet: What is the margin of safety percentage? What is the degrec of operating leverage? 3. Using the degree of operating leverage and without changing anything in your worksheet, calculate the percentage change in net operating income if unit sales increase by 15%. 4. Confirm the calculations you made in part (3) above by increasing the unit sales in your worksheet by 15%. What is the new net operating income and by what pereentage did it increase? 5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre bend of cycle that was popular in the 19305. The retro-look cycle would be sold for $10.000 and at that price. Thad estimates that he could sell 600 units each year. The variable cost to produce and sell the cyeles would be $7,500 per unit. The annual fixed cost would be $1,200,000. a. Using your worksheet, what would be the unit sales to break even, the margin of safety in dollars, and the degree of operating leverage? b. Thad is worried about the selling price. Rumors are circulating that other retro brands of eyeles may be revived. If so, the selling What is the margin of safety percentage? What is the degree of operating leverage? 3. Using the degree of operating leverage and without changing anything in your worksheet, calculate the percentage change in net operating income if unit sales increase by 15%. 4. Confirm the calculations you made in part (3) above by increasing the unit sales in your worksheet by 15%. What is the new net operating income and by what percentage did it increase? 5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930 s. The retro-look cycle would be sold for $10.000 and at that price, Thad estimates that he could sell 600 units each year. The variable cost to produce and sell the cycies would be $7,500 per unit. The annual fixed cost would be $1,200,000. a. Using your worksheet, what would be the unit sales to break even, the margin of safety in dollars, and the degree of operating leverage? b. Thad is worried about the selling price. Rumors are circulating that other retro brands of cycles may be revived. If so, the selling price for the Western Hombre would have to be reduced to $9,000 to compete effectively. In that event, Thad also would reduce fixed expenses by $300,000 by reducing advertising expenses, but he still hopes to sell 600 units per year. Do you think this is a good plan? Explain. Also, explain the degree of operating leverage that appears on your worksheet
