Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.

Get a Professional Answer

Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.

100% Satisfaction Guarantee

Rate the answer you receive.

Ask DanielleCPA Your Own Question

DanielleCPA, Certified Public Accountant (CPA)

Category: Finance

Satisfied Customers: 747

Experience: CPA experienced in tax and financial planning

50747609

Type Your Finance Question Here...

DanielleCPA is online now

RRJHA 15-12A. (Break-even point) you are a hard-working analyst

Resolved Question:

RRJHA 15-12A. (Break-even point) you are a hard-working analyst in the office of financial operations for a manufacturing firm that produces a single product. You have developed the following cost structure information for this company. All of it pertains to an output level of 10 million units. Using this information, find the break-even point in units of output for the firm. Return on operating assests = 25% Operating asset turnover = 5 times Operating assets = $20 million Degree of operating leverage = 4 times

15-13A. (Break-even point and operating leverage) Allison Radios manufactures a complete line of radio and communication equipment for law enforcement agencies. The average selling price of its finished product is $180 per unit. The variable cost for these same units is $126 Allison Radios incurs fixed costs of $540,000 per year. a. What is the break-even point in units for the company? b. What is the dollar sales volume the firm must achieve in order to reach the break-even point? c. What would be the firm’s profit or loss at the following units of production sold: 12,000 units? 15,000 units? 20,000 units: d. Find the degree of operating leverage for the production and sales levels given in part c.

Hi and welcome to Just Answer! I'm happy to help answer your Finance questions.Feel free to let me know if you have any follow-up questions or need clarification.

15-12A

The breakeven point is 7.5 million units calculated as follows:

It's given that operating assets are 20 million.

The formula for return on operating assets is net income over operating assets. Use some algebra so .25 = x/20. Solve for X and you get net income of 5 million.

The formula for operating asset turnover is sales/operating assets. The algebraic formula would be 5 = x/20. Solve for X and you get sales of 100 million.

The formula for operating leverage is contribution margin/net income. The algebra formula is 4 = x/5. Solve for x and you get a contribution margin of 20 million.

Keep in mind that the formula for breakeven is 0 = Contribution Margin - Fixed Costs.

Contribution margin is sales less variable costs.

We know that the contribution margin is 20 million or $2 per unit from our math above

We can calculate fixed costs as follows. We know that total costs are 95 million (100 million in sales less 5 million net income).

Variable costs are 80 million. 100 million in sales less 20 million contribution margin.

So fixed costs must be 15 million.

Your formula to compute breakeven in units is 0 = 2(x) -15,000,000. X is the number of units. Solve for x and you get 7.5 million units.

X = 10,000, so the breakeven point is 10,000 units

B.

10,000 units * 180 Selling price = $1,800,000

C.

Since 10,000 is the breakeven point, we know that all sales above this will result in a profit based on the contribution margin (sales price less variable costs). We know this to be $54.

So at 12,000 units, it would be 54 * 2000 or $108,000 profits

At 15,000 units, it would be $54 * 5,000 or 270,000 profits

At 20,000 units, it would be $54 * 10,000 or 540,000 profits

D.

Degree of operating leverage is (Sales - Variable Costs)/(Sales-Variable Costs-Fixed Costs)

At 12,000 units, this would be: 648,000/108,000 = 6

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.

JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.

Web sites like justanswer.com/legal ...leave nothing to chance.

Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.

Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.

I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...T.G.WMatteson, IL

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.GPHesperia, CA

Meet The Experts:

Rakhi Vasavada

Financial and Legal Consultant

Satisfied Customers:

2270

Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years