Answered: a. What is the break-even point in…

a. What is the break-even point in bags? b. Calculate the profit or loss on 18,000 bags. c. What is the degree of operating leverage at 20,000 bags ?

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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Question

United Snack Company sells 50-pound bags of peanuts to university dormitories for $5 a
bag. The fixed costs of this operation are $60,000, while the variable costs of peanuts are
$.5 per pound.
a. What is the break-even point in bags?
b. Calculate the profit or loss on 18,000 bags.
c. What is the degree of operating leverage at 20,000 bags ?
d. If United Snack Company has an annual interest expense of $10,000, and EBIT $80.000,
calculate the degree of financial leverage at 18,000.
e. What is the degree of combined leverage at both sales level

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Step 1: Introduction to operating leverage

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Step 2: a) Computation of Break-even point

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Step 3: b) Computation of profit or loss

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Step 4: c) Determining the degree of operating leverage

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