2. Bradjoli Inc. produces a single product. The results of operations for a typical month are as follows:

The company produced and sold 120,000 kgs of product during the month, and there were no beginning or ending inventories. Bradjoli pays income tax at a rate of 25%.

Required:

a) At the typical sales volume, calculate:

3 i) the breakeven point is units sold and in sales dollars.

2 ii) the margin of safety as a percentage.

3 iii) the operating leverage. Using the operating leverage, determine the operating profit that Bradjoli would report if sales were to increase 40%.

4 b) Compute the target sales in units and sales dollars if Bradjoli wants to earn an after-tax profit of $162,000.

1 i) At this sales volume, what is the operating leverage?

1 ii) At this sales volume, determine the operating profit that Bradjoli would report if sales were to increase 40%.

4 c) Using the typical months operating results as the starting point, calculate the breakeven point if Bradjoli plans to invest in automation with a monthly fixed cost of $25,000 and expects this will reduce variable expenses by $0.50 per unit. Do you recommend the company undertake this investment? Why or why not?