CVP Analysis and Cost Structure (Single Product).
Fallon Company produces road bikes. The company has annual fixed costs totalling $10,000,000 and variable costs of $600 per unit. Each unit of product is sold for $1,000. Fallon expects to sell 70,000 units this year.
Required:
1. Find the break-even point in units.
2. How many units must be sold to earn an annual profit of $2,000,000?
3. Find the break-even point in sales dollars.
4. What amount of sales dollars is required to earn an annual profit of $500,000?
5. Find the margin of safety in units.
6. Find the margin of safety in sales dollars.
7. How much will operating profit change if fixed costs are 15 percent lower than anticipated? Would this decrease in fixed costs result in higher or lower operating leverage? Explain.