How do you use degree of operating leverage to determine

Assignment Help Accounting Basics

Reference no: EM13483543

P&Q Company has provided you the following information. Monthly fixed expenses are $5,000 USD and variable expenses per unit are $25 USD. Their manufacturing capacity is only4,000 units per month and they are estimating that they will be able to sell all units manufactured each month.

1. If this is true, what price per unit will earn P&Q a monthly income of exactly $20,000 USD?

2. After P&Q's first month of operations, they only sold 2,000 units of production. Calculate what their net operating income was at 2,000 units using the price per unit you calculated above.

3. The 2,000 units sold last month is concerning for P&Q. They want to be earning more money than they made last month! P&Q conducted marketing research and their marketing people have assured them that if they reduce price by $2 per unit, they will be able to increase units ales by 25%. You need to run the numbers and let P&Q management know if they should move forward with this price reduction plan.

4. What is the margin of safety percentage (as a percent of sales) at this new pricing and new sales level (new pricing is $2 less per unit with a 25% increase in units sold).

5. What is the degree of operating leverage (this is a percentage) at this new pricing and sales level (new pricing is $2 less per unitwith a 25% increase in units sold)?

6. How do you use degree of operating leverage to determine the total increase in net operating income for a 30% increase in sales?

7. If at this new pricing level, the marketing/sales people were able to sell at full capacity, what would total net operating income be at that time?

Reference no: EM13483543

Questions Cloud

Ashley has received a large inheritance from her : ashley has received a large inheritance from her grandmother and wants to put aside enough money to pay for her childs

The loan of 15 000 is being repaid by 10 monthly : the loan of 15 000 is being repaid by 10 monthly installments with the first 5 payments of x and the last 5 payments of

Imagine you are the cfo of ibm you have been successful : imagine you are the cfo of ibm. you have been successful over the years but are now concerned about how many sources of

The bank receives interest on the loan at 10 convertible : mr.jones borrows 25 000 from bank b for 10 years. he makes semiannual payments of 2 000. the bank receives interest on

How do you use degree of operating leverage to determine : pampq company has provided you the following information. monthly fixed expenses are 5000 usd and variable expenses per

Suppose that microsoft is considering changing its capital : suppose that microsoft is considering changing its capital structure in light of the tough business environment.

A loan is being repaid by 15 annual installments of 1 000 : a loan is being repaid by 15 annual installments of 1 000 each. interest is at an effective rate of 5. immediately

What percentage increase in sales would result in no : xyz company sold 30000 units last month and sales totaled 1500000 usd. total variable monthly expenses were 600000 and

Brown needs to raise 500000 to construct the new amusement : question 1.brown ltd operates outdoor amusement centres in a number of country towns. the company has decided to build

User Account

All Pages