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6: Break-even point and selling price (12-3)



Break-even point and selling price ) Parks Castings Inc. will manufacture and sell 200,000 units next year. Fixed costs will total $300,000, and variable costs will be 60 percent of sales. a. The firm wants to achieve a level of earnings before interest and taxes of $250,000. What selling price per unit is necessary to achieve this result?

b. Set up an analytical income statement to verify your solution to part (a).

7: Break-even point and operating leverage (12-4).

(
Break-even point and operating leverage
) Footwear Inc. manufactures a complete line of men?s
and women?s dress shoes for independent merchants. The average selling price of its finished prod
-
uct is $85 per pair. The variable cost for this same pair of shoes is $58. Footwear Inc. incurs fixed
costs of $170,000 per year.
a.
What is the break-even point in pairs of shoes for the company?
b.
What is the dollar sales volume the firm must achieve to reach the break-even point?
c.
What would be the firm?s profit or loss at the following units of production sold: 7,000
pairs of shoes? 9,000 pairs of shoes? 15,000 pairs of shoes?

8: Operating leverage (12-5)

Rocky Mount Metals Company manufactures an assortment of wood-
burning stoves. The average selling price for the various units is $500. The associated variable cost
is $350 per unit. Fixed costs for the firm average $180,000 annually.
a.
What is the break-even point in units for the company?
b.
What is the dollar sales volume the firm must achieve to reach the break-even point?
c.
What is the degree of operating leverage for a production and sales level of 5,000 units for
the firm? (Calculate to three decimal places.)
d.
What will be the projected effect on earnings before interest and taxes if the firm?s sales
level should increase by 20 percent from the volume noted in part (c)?



 


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