Reference no: EM132677662

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:

Question a: Calculate the break-even point in number of units.

Question b: Calculate the break-even point in sales dollars.

Question c: 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.

Question d: What is the new contribution margin per unit?

Question e: What is the new break-even point?

Question f: 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?

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