15.13A (Break even point and operating leverage) Allison Radios manufactures a complete line of radios 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 for this 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 firms profit or loss at the following units of production sold: 12,000 units, 15K units, 20K units
D.)Find the degree of operating leverage for the production and sales levels given in part (C).
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SOLUTION PREVIEW
A.)What
is the break even point for this company?
Break-even point (in units) = Fixed cost/ Unit contribution margin
= 540,000/ (180 – 126)
= 10,000 units
