15-2A. (Break-even point) Napa Valley Winery (NVW) is a boutique winery that produces a high-quality, nonalcoholic red wine from organically grown cabernet sauvignon grapes. It sells each bottle for $30. NVW’s chief financial officer, XXXXX XXXXXg, has estimated variable costs to be 70 percent of sales. If NVW’s fixed costs are $360,000, how many bottles of its wine must NVW sell to break even? 30x = 360,000+0.7*30x
30x = 360,000+21x
9x = 360,000
X = 360,000/9 = 40,000
Hence, 40,000 bottles should be sold for break even. 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).
a)180x = 540000+126x
54x = 540000
X 540,000/54 =10,000 units b)Sales volume = $180*10,000=$1,800,000 c)Profit P(x) = 180x-126x -540000 = 54x-540000
P(120000) = (12,000x54)-540,000=$108,000
P(20000) = (20,000x54)-540,000=$540,000 d)Operating leverage for 12000 sales = [540,000/((126*12,000)+540,000)]*100 =26.31%
Similarly for 15000 and 20000 unit sales.
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