Answer:
Please see solution below
Explanation:
a. Break even in dollar sales
= [ Fixed cost / Contribution margin ] × Selling price per unit
Fixed cost = $140,000
Selling price per unit = $70
Variable expenses per unit = $42
BEP in dollars = [$140,000 / $70 - $42] × $70
= $350,000
b. Margin of safety percentage
= [ Current sales level - Break even point / Current sales level ] × 100
Current sales level = 10,000 units
Break even point = Fixed cost / Contribution margin
= $140,000 / $70 - $42
= 5,000 units
Margin of safety = [10,000 - 5,0000/10,000 ] × 100
= 50%
C. Degree of operating leverage.
= Contribution margin / Net operating income
Contribution margin = $70 - $42 = $28
Net operating income
Sales ($70 × 10,000)
$700,000
Less Variable cost ($42 × 10,000)
$420,000
Contribution margin
$280,000
Less Fixed cost
$140,000
Net operating income
$140,000
Degree of operating leverage = $280,000 / $140,000
= 20%
D. Percentage in net income
Sales ($70 × 12,000)
$840,000
Less variable cost
$420,000
Contribution margin
$420,000
Less fixed cost
$140,000
Net operating income
$280,000
Percentage change in net income
= [$140,000 / $280,000] × 100
= 50%
