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