5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $18,000 and at that price, Thad estimates 200 units would be sold each year. The variable cost to produce and sell the cycles would be $12,600 per unit. The annual fixed cost would be $540,000. a. What is the break-even in unit sales? Answer is complete and correct. 100 Break-even in unit sales b. What is the margin of safety in dollars? Answer is complete and correct. $1,800,000 Margin of safety in dollars c. What is the degree of operating leverage? (Round your answer to 2 decimal places.) Answer is not complete. Degree of operating leverage Thad is worried about the selling price. Rumors are circulating that other retro brands of cycles may be revived. If so, the selling price for the Western Hombre would have to be reduced to $13,100 to compete effectively. In that event, Thad would also reduce fixed expenses to $432,000 by reducing advertising expenses, but he still hopes to sell 200 units per year. d. What would the net operating Income be in this situation? (Negative amount should be indicated by a minus sign.) Net operating income (loss)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Need help with questions (C) and (D) please. I was able to solve the first two questions and not sure where I am making mathematical mistakes - photo attached (C) What is the degee of operating leverage? (D) Thad is worried about the selling price. Rumors are circulating that other retro brands of cycles may be revived. If so, the selling price for the westen hombre would have to be reduced to $13, 100 to compete effectivel. In that event, Thad would also reduce fixed expenses to $432, 000 by reducing advertising expenses, but he still hope to sell 200 unit per year. What would the net operating income by in this situation?

Transcribed Image Text:Required information 5. Thad Morgan, a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $18,000 and at that price, Thad estimates 200 units would be sold each year. The variable cost to produce and sell the cycles would be $12,600 per unit. The annual fixed cost would be $540,000. a. What is the break-even in unit sales? Answer is complete and correct. 100 Break-even in unit sales b. What is the margin of safety in dollars? Answer is complete and correct. $1,800,000 Margin of safety in dollars c. What is the degree of operating leverage? (Round your answer to 2 decimal places.) Answer is not complete. Degree of operating leverage Thad is worried about the selling price. Rumors are circulating that other retro brands of cycles may be revived. If so, the selling price for the Western Hombre would have to be reduced to $13,100 to compete effectively. In that event, Thad would also reduce fixed expenses to $432,000 by reducing advertising expenses, but he still hopes to sell 200 units per year. d. What would the net operating income be in this situation? (Negative amount should be indicated by a minus sign.) Net operating income (loss)

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