5. Company A sell protein bars. The selling price per bar is $7.20; and variable cost of production is $4.32. Total fixed costs per year is $316,600. The company currently sells 125,000 bars per year.

What is the degree of operating leverage? If the company can increase sales in bars by 30%, what % increase will it experience in income?

DOL % increase

12.1 25%

11.45 175%

10.61 301%

8.295 249%

6. If the company increases advertising by $25,200 (fixed cost), sales in # of bars will increase by $15%. What will be the new break-even point and degree of operating leverage? (refer to #5)

BEP Degree of Operating Leverage

$854,500 5.73

$500,475 6.35

$475,000 5.78

$325,000 3.63