Answer:
a. 5,000 units
b. 8,400 units and 5,840 units
c. $40,000
d. decrease of operating profit by 22.50 % and increase of operating profit by 45.00%
Explanation:
Breakeven point is level at which a firm makes neither profit nor loss
<em>Break even units = Fixed Costs ÷ Contribution per unit</em>
Break even units = 5,000 units
<em>Units to achieve target profit = Target Profit + Fixed Costs ÷ Contribution per unit</em>
Units to achieve profit of $34,000 = 8,400 units
Units to achieve profit of $8,400 = 5,840 units
<em>Operating Profit = Contribution - Fixed Costs</em>
= $40,000
The effect on change of operating profit can be best shown by calculation of the Degree of Operating Leverage (DOL)
<em>DOL = Contribution ÷ Profit</em>
= 2.25
Sales decreases of 10 percent = decrease of operating profit by 22.50 % (10 % × 2.25)
Sales Increases of 20 percent = increase of operating profit by 45.00% (20%× 2.25)