Finance

Have Finance Questions? Ask a Financial Expert Online.

Finance

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

RRJHA 15-12A. (Break-even point) you...
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.
Show More
Show Less
7/4/2011
DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 794
Experience: CPA experienced in tax and financial planning
Verified

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.

15-13A

A.

Breakeven point = Selling Price(x) - Variable Costs(x) - Fixed Costs

180(x) - 126(x) - 540,000 = 0

54(x) - 540,000=0

54(x) = 540,000

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

At 15,000, this would be: 810,000/270,000= 3

At 20,000, this would be 1,080,000/540,000 = 2

DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 794
Experience: CPA experienced in tax and financial planning
Verified
DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 794
794 Satisfied Customers
Experience: CPA experienced in tax and financial planning

DanielleCPA is online now

A new question is answered every 9 seconds

• Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
• Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.

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.
...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 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

< Previous | Next >

## Meet the Experts:

Financial and Legal Consultant

2,608 satisfied customers

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

Megan C

Certified Public Accountant (CPA)

2,218 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Manal Elkhoshkhany

Tutor

1,920 satisfied customers

More than 5000 online tutoring sessions.

JKCPA

CPA

844 satisfied customers

Bachelors degree and CPA with Accounting experience.

Eric

Financial Manager

559 satisfied customers

Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

R. Klein, EA

Accountant

480 satisfied customers

TurboTax Expert. QuickBooks Certified Pro Advisor

Dimitry K., Esq.

Attorney

332 satisfied customers

< Previous | Next >

Related Finance Questions
I live in Wisconsin and my questions has to do with my
I live in Wisconsin and my questions has to do with my current rental property. I bought the "current rental" my first home approximately 11 years ago and from 2006 - 2013 it was my primary residence … read more
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Will here from OKC OK My Question is about Finance What is
Hello Will Johnson here from OKC OK My Question is about Finance What is allowed on my Balance Sheet I own a Real Estate Management Company And I have 42 Clients that I have Sold Investment Grade Real… read more
Master's Degree
180 satisfied customers
I am 65 years old, with 35000 credit card debt. i have
i am 65 years old, with 35000 credit card debt. i have retired already, but working another job and I plan to retire completely in 2 years, if my health holds up. I have savings of 36000 dollars, and … read more
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am preparing the 1099 forms for my contractors. I lived in
I am preparing the 1099 forms for my contractors. I lived in Texas 10 months and the last two months of 2017 moved to California. While preparing the forms I ran into two dilemmas: Shall I use my Cali… read more
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Hi Lev ,can I ask you about another scenario ,based upon the rent issue ,but this time with me selling the houses… read more
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Could someone do some maths calculations for me in relation
Could someone do some maths calculations for me in relation to how much my rent might cost versus other income I have .I'm not very good at maths… read more
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I made \$150K in 1099 self employed income. I am a real
I made \$150K in 1099 self employed income. I am a real estate agent. I ran the numbers through turbo tax and they said I owe \$36K to the Feds and \$4K to the state. I file head of household with 2 depe… read more
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,083 satisfied customers
I must fill out form It-2104 for a new job I am starting
Hi, I must fill out form It-2104 for a new job I am starting tomorrow and am baffled by it. I want to file married but single and withhold more taxes such as claiming 0 now and have my husband claim m… read more
Barbara
Enrolled Agent, Paralegal
3,804 satisfied customers
If I apply for a new credit card and transfer my balance
If I apply for a new credit card and transfer my balance from an old credit card to the new one, then later decide to return something that was purchased on my first credit card how would that work?… read more
Carter McBride
LLM
265 satisfied customers
When applying for a student loan financial aid, how much
When applying for a student loan financial aid, how much does your credit score play in the decision and what if you have a bankruptcy ??… read more
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I run a US based LLC and am unsure what transactions I can
I run a US based LLC and am unsure what transactions I can put on our company card that are kosher for the IRS.For instance, can I include company dinners with employees or prospects on it? Can I incl… read more
Mark Taylor
Certified Public Accountant
Masters
2,282 satisfied customers
Whats the current status of the triple tax free Municipal
whats the current status of the triple tax free Municipal bonds? are bond prices going down as interest rates go up? is this a good time to buy tax free municipal bonds? I see some online banks offeri… read more
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have moved several times during the past two years and not
I have moved several times during the past two years and not sure that IRS have had my most recent address. If I am audited -- would IRS send me a written notifaction to the address they have on my au… read more
Barbara
Enrolled Agent, Paralegal
3,804 satisfied customers
I do have a question. I'm trying to buy an RV and I received
I do have a question. I'm trying to buy an RV and I received a Motor Vehicle Purchase Order - Simple Interest. It shows the dealership as the creditor/seller and list finance charges, etc. But, it als… read more
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Should I just delete all the rental property info from that
Ok, so should I just delete all the rental property info from that 2016 1065 as those assets are what caused the forms not to balance. I only has some income from the rentals for that month.… read more
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
I am a tax preparer doing tax returns specially for non
Hello, I am a tax preparer doing tax returns specially for non residents,1040NR. My clients are students who work in the US for the summer on a J1 visa,and they return to they country in Europe. So ,u… read more
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have small, tiny business that is freelancing. and I am
I have small, tiny business that is freelancing. and I am thinking to get business register. But I have a full time job as well, and I am not sure which company structure I should choose for tax benefit for myself. … read more
Carter McBride
LLM
265 satisfied customers
How are we supposed to track and report clergy stipends.
How are we supposed to track and report clergy stipends. Background: We did not report our priests income with our payroll, now we are asked to give them a W-2. How are we supposed to track and report… read more
TaxRobin