Question
Luigi Inc. sells pairs of shoes with the following cost information per unit (which is a pair of shoes): Direct materials $12 Direct labour $7
Luigi Inc. sells pairs of shoes with the following cost information per unit (which is a pair of shoes):
Direct materials | $12 |
Direct labour | $7 |
Variable overhead | $8 |
Sales commission | $3 |
Total variable costs | $30 |
The company sells each unit for $40 and has the following annual fixed costs:
RenT | $ 14,400 |
Salaries | $ 24,000 |
Advertising | $ 12,000 |
Other fixed costs | $ 3,600 |
Total fixed costs | $ 54,000 |
a) Calculate the companys contribution margin ratio.
b) Calculate the companys breakeven point for the year in units.
c) Calculate the companys breakeven point for the year in sales dollars.
d) How many units must be sold to earn operating income of $50,000?
e) This year the company sold 8,000 units. Calculate the margin of safety in units.
f) Calculate the degree of operating leverage.
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