Question
Mustang Ltd. processes cow skins into leather soles for shoes. The unit selling price is $32, the unit variable cost is $24, and fixed costs
Mustang Ltd. processes cow skins into leather soles for shoes. The unit selling price is $32, the unit variable cost is $24, and fixed costs are $320,000. Required
A)Calculate the break-even point in number of units.
B)Calculate the break-even point in sales dollars.
C)How many sales, in units, would be required to earn an operating profit of $40,000?
For parts d, e, and f, assume Mustang is able to reduce its variable costs by $3 per unit.
D)What is the new contribution margin per unit? E)What is the new break-even point?
F)We are still experiencing the lower variable costs from parts d and e. Mustang executives believe that if they lowered the selling price by 10%, they would sell 20% more units. What sales dollar figure would now be required to earn an operating profit of $60,000?
G)At an operating profit of $40,000 and costs as per the initial data, what is the degree of operating leverage? Show your calculations.
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