Question 4:

Footwear Inc. manufactures a complete line of mens womens dress shoes for independent merchants. The average selling price of its finished product is $84 per pair. The variable cost for this same pair of shoes is $42. Footwear Inc. incurs fixed costs of $168,000 per year.

a) Calculate the profit or loss at the following units of production sold: 7,000 pairs of shoes? 9,000 pairs of shoes? b) Calculate the operating leverage. c) What is the meaning of operating leverage? Explain how operating leverage affects both profitability and risk of the firm.