The Andrea S. Fault Seismometer Company is an all-equity-financed firm. It earns monthly, after taxes, $24,000 on sales of $880,000. The tax rate of the company is 40 per- cent. The companys only product, The Desktop Seismometer, sells for $200, of which $150 is variable cost. a. What is the companys monthly fixed operating cost? b. What is the monthly operating break-even point in units? In dollars? c. Compute and plot the degree of operating leverage (DOL) versus quantity produced and sold for the following possible monthly sales levels: 4,000 units; 4,400 units; 4,800 units; 5,200 units; 5,600 units; and 6,000 units. d. What does the graph that you drew (see Part (c)) and especially the companys DOL at its current sales figure tell you about the sensitivity of the companys operating profit to changes in sales?

2. What would be the effect of the following on the break-even point of the Andrea S. Fault Company (Problem 1)? a. An increase in selling price of $50 per unit (assume that sales volume remains constant) b. A decrease in fixed operating costs of $20,000 per month c. A decrease in variable costs of $10 per unit and an increase in fixed costs of $60,000 per month question 2