QUESTION 1

Degree of Operating Leverage

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 5,000 units sold is $100,500.

Required:

Calculate the degree of operating leverage. (Round your answer to the nearest tenth.)

__________

QUESTION 2

Margin of Safety

Head-First Company plans to sell 4,930 bicycle helmets at $66 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Break-even units equal 2,357.

Required:

1. Calculate the margin of safety in terms of the number of units. ________units

2. Calculate the margin of safety in terms of sales revenue. $________