Reference no: EM132725555

Woodland Co. plans to sell 200 desks per month. It has bought all its desks from a supplier for $45 per unit. However, the company has the opportunity to acquire a small manufacturing facility where it could produce its own desks. The projected data for producing its own desks are as follows, for a desk: selling price $60; variable costs, $36; total fixed costs (per year), $2,400. The company's combined income tax rate is estimated as 20%.

Question 1: If the company acquired the manufacturing facility, how many desks per year would it have to produce in order to break even?

Question 2: To earn an annual after-tax profit of $4,000, how many units would it have to sell if it produces its own desks?

Question 3: Calculate the company's margin of safety (MOS) in units if 200 units are sold as budgeted. Define what is meant by the MOS.

Question 4: Calculate the company's degree of operating leverage (DOL) if 200 units are sold as budgeted. Define what is meant by the DOL.