1. Tower, Inc. had sales of 4,000 units in March. A 30% increase is expected in April. The company will maintain 10% of expected unit sales for April in ending inventory. Beginning inventory for April was 300 units. How many units should the company produce in April?

2. Formand, Co. has May sales of 300 units and forecasted June sales of 500 units. The company maintains ending inventory equal to 75% of sales. Junes beginning inventory reflects this policy. Mays ending inventory 200 units. What is June's required production?

3. Tower Appliance has fixed costs of $70,000; its toasters sell for $15 per unit, and the variable cost to produce them is $10. Compute the break-even point in units.

4. If a firm has a break-even point of 15,000 units and the contribution margin on the firm's single product is $4.00 per unit and fixed costs are $60,000, what will the firm's operating profit be at sales of 40,000 units? (Hint: calculate the total contribution margin first).

A. $100,000

B. $30,000

C. $15,000

D. $145,000

5. If a firm has the lowest possible degree of operating leverage and the lowest possible degree f financial leverage, then

A. DOL equals 1, and DFL equals 0.

B. DOL equals 0, and DFL equals 1.

C. DOL equals 1, and DFL equals 1.

D. none of these

Use the following information for Questions 5, 6 and 7.

The Handle Company produces baseball gloves. Here is the companys income statement for 2019.

Income Statement For the Year Ended December 31, 2019

Sales (20,000 gloves at $80 each)......................................................................	$1,600,000
Less: Variable costs (20,000 gloves at $20)........................................................................	400,000
Fixed costs.......................................................................	700,000
Earnings before interest and taxes (EBIT).....................................................................	500,000
Interest expense..................................................................	80,000
Earnings before taxes (EBT)......................................................................	420,000
Income tax expense (30%)..............................................................................	126,000
Earnings after taxes (EAT)......................................................................	$ 294,000

6. Compute Degree of operating leverage.

7. Compute Degree of financial leverage.

8. Compute Degree of combined leverage.

Use the following information for Questions 8, 9, 10 and 11.

The Harmon Company manufactures skates. Here is the company's income statement for 2019 Income Statement For the Year Ended December 31, 2019
Sales (30,000 skates @ $20 each)....................................................................	$600,000
Less: Variable costs (30,000 skates at $7)........................................................................	210,000
Fixed costs.....................................................................	270,000
Earnings before interest and taxes (EBIT)...................................................................	120,000
Interest expense................................................................	70,000
Earnings before taxes (EBT)....................................................................	50,000
Income tax expense (35%)............................................................................	17,500
Earnings after taxes (EAT)....................................................................	$32,500

9. Degree of operating leverage.

10. Degree of financial leverage.

11. Degree of combined leverage.

12. Break-even point in units.

13. A high DOL means:

A. there are high labor costs.

B. there is high debt.

C. there is a large amount of equity.

D. there are high fixed costs

Use the following information for the next three questions. Heister Corporation produces class rings to sell to college and high school students. These rings sell for $75 each, and cost $30 each to produce. Heister has fixed costs of $45,000.

14. Calculate Heister's break-even point.

15. How much profit (loss) will Heister have if it sells 6,000 rings?

16. Heister's president, J. R. D'Angelo, expects an annual profit of $200,000. How many rings must be sold to attain this profit?

17. If the business cycle were just beginning its upswing, which firm would you anticipate would be likely to show the best growth in EPS over the next year? Firm A has high combined leverage and Firm B has low combined leverage.

A. Firm A.

B. Firm B.

C. Indifferent between the two.

D. It depends on how much financial leverage each firm has.

18 A high DOL means:

A. there are high labor costs.

B. there is high debt.

C. there is a large amount of equity.

D. there are high fixed costs.

19. Davison Toaster Corp. sells its products for $150 per unit. It has the following costs:

Rent Factory Labor Insurance and Security Raw Materials Executive Salaries

$115,000 $20 per unit 50,000 $6 per unit $150,000

What is the break-even point?

20. If a firm has a price of $6.00, variable cost per unit of $4.00 and a breakeven point of 40,000 units, how much fixed costs does it have?