Question
Byron Manufacturing reaches its break-even level of activity when it sells 500 units and generates $12,000 in revenue, because at this level of activity the
Byron Manufacturing reaches its break-even level of activity when it sells500
units and generates$12,000
in revenue, because at this level of activity the firm's revenueequals
its total cost. In addition, you can determine from the chart that Byron Manufacturing'sfixed costsare$6,000
and itsprice per unitis$24.00
andvariable cost per unitis$12.00
.
If fixed costs increase, what will happen to the break-even point?
The break-even point will increase.
If the price per unit decreases, what will happen to the break-even point?
The break-even point will increase.
Feedback
The CVP chart illustrates the calculations done in the preceding part. The results are the same.
CVP analysis is used to analyze the effects of changes in selling prices, costs and volume on profits. It is also used to determinetarget profit, themargin of safety,operating leverage, product mix and choosing among marketing strategies and others.
Suppose Byron management has a target operating income of $3,000. Assume the same costs as above and the sell price remains at $24 per unit. How many units does Byron need to sell to meet this goal?
units
What is Byron's margin of safety in sales and in units when Byron sells 730 units?
Margin of safety in sales $Margin of safety in unitsunits
What is the degree of operating leverage when 730 units are sold? If required, round your answer to two decimal places.
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