Reference no: EM13518991

Lobo, International has two divisions, Manufacturing and Retail which had the following operating results over the last two years:

	Manufacturing	Division	Retail Division
	Year 1	Year 2	Year 1	Year 2
Sales (in units)	5,000	6,500	2,000	2,400
Sales (in dollars)	$400,000	$520,000	$250,000	$300,000
Less cost of goods sold	290,000	353,000	160,000	192,000
Gross margin	110,000	167,000	90,000	108,000
Less selling and administrative expenses	50,000	59,000	52,000	56,000
Net operating income	$ 60,000	$108,000	$ 38,000	$ 52,000

Assume that the cost structure in each division above did not change over the two years. Use the high-low method as needed to estimate variable and fixed expenses.

Required:

a. Calculate the break-even point in sales dollars for each division.

b. Calculate the degree of operating leverage for the Manufacturing Division for each year.