Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of Financial Management. New York, NY: McGraw-Hill Education. 16th edition. #13. United Snack Company sells 50-pound bags of peanuts to univeristy dormitories for $20 a bag.  The fixed costs of this operation are $176,250, while the variable costs of peanuts are $0.15 per pound.A. What is the break-even point in bags?B. Calculate the porfit or loss on 7,000 bags and on 20,000 bags.C. What is the degree of operating at 19,000 bags and at 24,000 bags?  Why does the degree of operating leverage change as the quantity sold increases?D. If United Snack Company has an annual interest expense of $15,000, calculate the degree of financial leverage at both 19,000 and 24,000 bags.E. What is the degree of combined leverage at both sales levels?

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Asked Jun 4, 2019
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Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of Financial Management. New York, NY: McGraw-Hill Education. 16th edition.

 

#13. United Snack Company sells 50-pound bags of peanuts to univeristy dormitories for $20 a bag.  The fixed costs of this operation are $176,250, while the variable costs of peanuts are $0.15 per pound.

A. What is the break-even point in bags?

B. Calculate the porfit or loss on 7,000 bags and on 20,000 bags.

C. What is the degree of operating at 19,000 bags and at 24,000 bags?  Why does the degree of operating leverage change as the quantity sold increases?

D. If United Snack Company has an annual interest expense of $15,000, calculate the degree of financial leverage at both 19,000 and 24,000 bags.

E. What is the degree of combined leverage at both sales levels?

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Expert Answer

Step 1

a.

Calculation of Break-Even point in bags:

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Step 2

b.

Calculation of Profit or Loss at 7,000 and 20,000 bags:

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Step 3

c.

Calculation of Degree of Operating Leverage at 19,000 and 24,000 bags:

...
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