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15-2A. (Break-even point) Napa Valley Winery (NVW) is a boutique

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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?


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).

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(15000)= (15,000x54)-540,000=$270,000


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.


[540,000/((126*15,000)+540,000)]*100 =22.222%


[540,000/((126*20,000)+540,000)]*100 =17.647%


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Experience: Post Graduate Diploma in Management (MBA)
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