Larimore Company sales are DH 560,000. The company has variable costs equal to 40% of sales and total fixed costs of DH 150,000.

Required:

a) What is the companys break-even point in sales dollars? (Show your workings) (1 mark)

b) Compute the companys net income and operating leverage (rounded to one decimal place) if sales increase by 10%. (Show your workings) (2 marks)

c) Describe the effect on operating leverage as a companys sales increase and it moves further beyond its break-even point. (2 marks)

d) Discuss the impact of the advertising cuts on the companys break-even point and margin of safety. (2 marks)