The following data is for two companies, A and B

A B

Selling price $50/unit $60/unit

Variable manufacturing costs $15/unit $12/unit

Variable selling and admin. costs $ 5/unit $ 8/unit

Fixed manufacturing costs $200,000 $300,000

Fixed selling and admin. costs $ 25,000 $ 80,000

1 Ignoring income taxes, how many units must B sell to break-even?

2 Ignoring income taxes, and assuming production and sales for A are 15,000 units, what is its operating leverage?

3 Assuming an income tax rate of 25%, do you think the breakeven point for B would increase or decrease relative to your breakeven point answer in (a) above? Why

4 Assuming an income tax rate of 25%, how many more units must B sell than A for each to achieve after tax net income of $135,000?

5 What is B's product cost per unit under a variable costing system? Provide a specific value.

6 When production levels are expected to decrease within a relevant range, what effects would be anticipated with respect to each of the following (increase, decrease, or no change)?

Fixed costs per unit Variable costs per unit