   Chapter 11, Problem 11.6.5P

Chapter
Section
Textbook Problem

Contribution margin, break-even sales, cost-volume-profit graph, and operating leverage Organic Health Care Products Inc. expects to maintain the same inventories at the end of 20Y8 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during 20Y8. A summary report of these estimates is as follows: It is expected that 400.000 units will be sold at a price of $25 a unit. Maximum sales within the relevant range are 500.000 units.InstructionsDetermine the operating leverage. To determine Concept Introduction: Degree of operating leverage: The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows: Degree of operating leverage = Contribution MarginOperating income Change in operating income = Changes in sales ×Degree of operating leverage To Calculate: The Degree of operating leverage Explanation The Degree of operating leverage is calculated as follows:  Sales Revenue (A) (400000 units @$25) $10,000,000 Total Variable Costs (B) (400000 units @$15) \$ 6,000,000 Total Contribution Margi...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Discuss the pros and cons of having the directors formally announce a firms future dividend policy.

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

What are the advantages of a sole proprietorship?

Foundations of Business (MindTap Course List)

PREFERRED STOCK RATE OF RETURN What will be the nominal rate of return on a perpetual preferred stock with a 10...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List) 