Josh Reddick Inc. makes and sells a computer game which has the following data:

Unit sales price $60

Unit variable manufacturing cost $16

Annual fixed, selling and

administrative costs $56,000

Unit variable selling costs $14

Annual fixed manufacturing cost (with respect to sales volume):

Depreciation $55,710

Setups (46 @ $80 each) $ 3,680

Inspections (1,210 @ $9 each) $10,890

Material handling

(1,480 hours @ $14 per hour) $20,720

The management of Reddick is considering the installation of a new computer-controlled equipment that will streamline the production process and generate output of higher quality than the present production system. With the new equipment there will be an increase in fixed costs with respect to sales volume. The new data, if the system is implemented will be as follows:

Unit sales price $60

Unit variable manufacturing cost $11

Annual fixed, selling and

administrative costs $52,000

Unit variable selling costs $14

Annual fixed manufacturing cost (with respect to sales volume):

Depreciation $138,050

Setups (420 @ $35 each) $ 14,700

Inspections (420 @ $5 each) $ 2,100

Material handling

(210 hours @ $15 per hour) $ 3,150

REQUIRED: Based on the above information, compute the break-even point in annual sales units under the present production system, and break-even point using the new production system.

Assume Reddicks sales of 10,000 units, what is their current operating leverage and what would be their new operating leverage?