Reference no: EM132722478

Question - Mustang Ltd. processes cow skins into leather soles for shoes. The unit selling price is $32, the unit variable cost is $24, and fixed costs are $320,000.

Required -

1. Calculate the break-even point in number of units.

2. Calculate the break-even point in sales dollars.

3. How many sales, in units, would be required to earn an operating profit of $40,000?

For parts d, e, and f, assume Mustang is able to reduce its variable costs by $3 per unit.

1. What is the new contribution margin per unit?

2. What is the new break-even point?

3. We are still experiencing the lower variable costs from parts d and e. Mustang executives believe that if they lowered the selling price by 10%, they would sell 20% more units. What sales dollar figure would now be required to earn an operating profit of $60,000?

4. At an operating profit of $40,000 and costs as per the initial data, what is the degree of operating leverage? Show your calculations.