Degree of operating leverage for manufacturing division

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Reference no: EM13519014

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.

Reference no: EM13519014

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