**Offshore Petroleum's Financial Analysis**Offshore Petroleum's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000. The selling price per barrel of oil is $18, and variable costs per barrel are $10.**Tasks:**(a) **Breakeven Output** Determine the breakeven output (in dollars).(b) **Target Profit** Determine the number of barrels of oil that Offshore must produce and sell to earn a target (operating) profit of $1,500,000.(c) **Degree of Operating Leverage** Determine the degree of operating leverage at an output of 400,000 barrels.(d) **Probability of Operating Loss** Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.

a. Breakeven output (in dollars) = Fixed cost / Profit-volume ratio = $2500000 / 0.4444 = $5625563…

Offshore Petroleum's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000. Selling price per barrel of oil is $18 and variable costs per barrel are $10. Determine the breakeven output (in dollars). (a) (b) Determine the number of barrels of oil that offshore must produce and sell in order to earn a target (operating) profit of $1,500,000. (c) Determine the degree of operating leverage at an output of 400,000 barrels. (d) Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.

Offshore Petroleum's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000. Selling price per barrel of oil is $18 and variable costs per barrel are $10. Determine the breakeven output (in dollars). (a) (b) Determine the number of barrels of oil that offshore must produce and sell in order to earn a target (operating) profit of $1,500,000. (c) Determine the degree of operating leverage at an output of 400,000 barrels. (d) Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

**Offshore Petroleum's Financial Analysis**

Offshore Petroleum's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000. The selling price per barrel of oil is $18, and variable costs per barrel are $10.

**Tasks:**

(a) **Breakeven Output**
Determine the breakeven output (in dollars).

(b) **Target Profit**
Determine the number of barrels of oil that Offshore must produce and sell to earn a target (operating) profit of $1,500,000.

(c) **Degree of Operating Leverage**
Determine the degree of operating leverage at an output of 400,000 barrels.

(d) **Probability of Operating Loss**
Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.

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