Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
2. Change all of the numbers in the data area of your worksheet so that it looks like this: If your formulas are correct, you
2. Change all of the numbers in the data area of your worksheet so that it looks like this: If your formulas are correct, you should get the correct answers to the following questions. (a) What is the break-even in dollar sales? (b) What is the margin of safety percentage? (c) What is the degree of operating leverage? Note: Round your answer to 2 decimal places. 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 20%. 4. Confirm your calculations in Requirement 3 above by increasing the unit sales in your worksheet by 20% so that the Data area looks like this: (a) What is net operating income? Note: Negative amount should be indicated by a minus sign. 5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $17,000, and at that price, Thad estimates he could sell 700 units each year. The variable cost to produce and sell the cycles would be $12,750 per unit. The annual fixed cost would be $2,826,250. a. What is the break-even in unit sales? b. What is the margin of safety in dollars? c. What is the degree of operating leverage? Note: Round your answer to 2 decimal places. d. 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 $15,500 to compete effectively. In that event, Thad also would reduce fixed expenses to $2,290,250 by reducing advertising expenses, but he still hopes to sell 700 units per year. What would the net operating income be in this situation? Note: Negative amount should be indicated by a minus sign
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started