Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Lipless Into Paragraph Styles 1 2 3 A How many units needs to be sold in order to break even! B. Calculate the increase in

image text in transcribed
image text in transcribed
Lipless Into Paragraph Styles 1 2 3 A How many units needs to be sold in order to break even! B. Calculate the increase in net income if an additional 1,000 units over the break-even point are sold C. How many units need to be sold in order to eam a target profit of $600,000? (Ignore taxes) 8. The following information is available for the Blue and Red Companies for 2005: Blue Red Sales (200,000 units) $1,800,000 $1,800,000 Variable costs 800.000 1,200,000 Contribution margin 1,000,000 600,000 Fixed costs 500.000 100.000 Net income $ 500.000 $ 500,000 Required: A Compute the operating leverage for each company and explain what operating leverage measures. B. If both companies experience a 20% increase in sales volume, will they continue to have the same net income? Why or why not? Explain your answer with respect to each company's operating leverage. NOTE: Operating leverage = Contribution margin Net income. It measures how sensitive a company's net income is to a given percentage change in sales. The higher as 8. To following information is available for the Blue and Red Companies for 2005: Blue Red Sales (200,000 units) $1,800,000 $1,800,000 Variable costs 800.000 1.200,000 Contribution margin 1,000,000 600,000 Fixed costs 500,000 100.000 Net income S 500,000 S 500,000 Required: A Compute the operating leverage for each company and explain what operating leverage measures B. If both companies experience a 20% increase in sales volume, will they continue to have the same net income? Why or why not? Explain your answer with respect to each company's operating leverage. NOTE: : Operating leverage = Contribution margin-Net income. It measures how sensitive a company's net income is to a given percentage change in sales. The higher a company's operating leverage, the more sensitive its net income is to a change in sales

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Accounting

Authors: Shirine Rathore

2nd Edition

8120336739, 9788120336735

More Books

Students also viewed these Accounting questions