One of NWCs employees recently submitted a proposal that NWC should expand its operations and sell its chemicals in retail establishments such as Home Depot and Lowes. To determine the feasibility of the idea, Sue needs to perform a breakeven analysis. The fixed costs associated with producing and selling the chemicals to retail stores would be $60 million, the selling price per unit is expected to be $10, and the variable cost ratio would be the same as it is currently.

What is the operating breakeven point both in dollars and in number of units for the employees proposal?

Draw the operating breakeven chart for the proposal. Should the employees proposal be adopted if NWC can produce and sell 20 million units of the chemical?

If NWC can produce and sell 20 million units of its product to retail stores, what would be its degree of operating leverage? What would be NWCs percent increase in operating profits if sales actually were 10% higher than expected?

Assume NWC has excess capacity, so it does not need to raise any additional external funds to implement the proposalthat is, its interest payments remain the same next year as they were last year. What would be its degree of financial leverage and its degree of total leverage? If the actual sales turned out to be 10% greater than expected, as a percent, how much greater would the earnings per share be?

Explain how breakeven analysis and leverage analysis can be used for planning the implementation of this proposal.