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Calculate the degree of operating leverage

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Question - Glory Engineering Ltd manufactures an engine vacuum cleaner called the "EAC". Cost and revenue data for the "EAC" are given below, based on sales of 50,000 units. Total Sales revenue $2,000,000 Less: variable costs $1,400,000 Contribution margin $600,000 Less: fixed costs $240,000 Net profit $360,000

Required -

(a) Calculate the break-even point in units AND in sales dollars.

(b) The company intends to increase promotion of its products by increasing its advertising budget by $60,000. As a consequence, sales units are expected to increase by 8,000. Calculate the net profit if these changes occur.

(c) How many units of product would the company have had to sell to earn a target net profit of $600,000?

(d) Determine the margin of safety (in dollars) based on the current sales level.

(e) Calculate the degree of operating leverage AND advise the management about the percentage increase in net profit if they estimate an increase of 10 percent on the sales revenue.

Reference no: EM132997799

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