Breakeven, Target Profit, Margin of Safety, Operating Leverage

Pike Street Taffy makes and sells taffy in a variety of flavours in a shop located in the local public market. Data for a recent week are as follows:

Revenue (2,000 kgs @ $4.80 per kg)		$9,600
Cost of ingredients	$3,200
Rent	800
Wages	4,800	8,800
Pretax income		800
Taxes (20%)		160
After-tax income		$ 640

All employees work standard shifts, no matter how much taffy is produced or sold.

REQUIRED

A.

Calculate the breakeven point in units and in revenue.

B.

Calculate the number of units and the amount of revenues that would be needed for after-tax income of $3,000.

C.

Calculate the margin of safety in units and the margin of safety percentage.

D.

Calculate the degree of operating leverage.