Reference no: EM133062749
Question - The following budget data apply to Hemphrrey foods:
Sales (100,000) $1,000,000
Costs Direct labour 200,000
Direct materials $300,000
Fixed factory overheads 100,000
Variable factory overheads 150,000
Marketing & administration 160,000
Total cost 910,000
Budgeted pre-tax profit $90,000
Direct labour workers are paid hourly wages and go home when there is no work. The marketing and administration cost include $50,000 that varies proportionately with production volume. Assume that sales and production volumes are equal.
Required -
1. Calculate the number of units that must be sold to achieve a target after-tax income of $120,00, assuming the tax rate is 40 per cent.
2. Calculate the margin of safety in both revenues and units.
3. Calculate the degree of operating leverage.