Question
Woodland Co. plans to sell 200 desks per month. It has bought all its desks from a supplier for $45 per unit. However, the company
Woodland Co. plans to sell 200 desks per month. It has bought all its desks from a supplier for $45 per unit. However, the company has the opportunity to acquire a small manufacturing facility where it could produce its own desks. The projected data for producing its own desks are as follows, for a desk: selling price $60; variable costs, $36; total fixed costs (per year), $2,400. The company's combined income tax rate is estimated as 20%.
If the company acquired the manufacturing facility, how many desks per year would it have to produce in order to break even?
To earn an annual after-tax profit of $4,000, how many units would it have to sell if it produces its own desks?
Calculate the company's margin of safety (MOS) in units if 200 units are sold as budgeted. Define what is meant by the MOS.
Calculate the company's degree of operating leverage (DOL) if 200 units are sold as budgeted. Define what is meant by the DOL.
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