The fixed operating cost in the question is one of the requirement to be used to calculate the Break even units not the break-even point.
Usually, the break-even point is the point where the total revenue equals the total costs of the business.
In other word, the break-even point means that the expenses and revenue are equal and thus, the company will record neither a net loss or gain.
- The formula used to derive the Break even unit is <em>[Fixed Costs / (Sales price per unit – Variable costs per unit)}</em>
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Therefore, the fixed operating cost in the question is one of the requirement to be used to calculate the Break even units not the break-even point.
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Answer:
Paraguas should borrow at LIBOR + 2.000% and swap for fixed rate debt.
Lluvia should choose funding in floating rate
Explanation:
Paraguas wants the security of fixed rate borrowing; thus it should borrow at LIBOR + 2.000% and swap for fixed rate debt, in which Libor is 5.500%; their total cost at 7.5% is still lower than Fixed rate 12.0%
Lluvia prefer the flexibility of floating rate borrowing, and its rating is better; then it can enjoy lower cost of borrowing at 5%. However it may face the increase if LIBOR increase later; vice versa if LIBOR decrease, its cost of borrowing is able to reduce also.
Answer:
- $89,000
Explanation:
The computation of the financial advantage or disadvantage is shown below:
= Contribution margin loss - fixed expense
where,
Contribution margin is - $246,000
And, the fixed expense would be
= Advertising (for the bilge pump product line) + Salary of product-line manager + Insurance on inventories
= $23,000 + $126,000 + $8,000
= $157,000
Now put these values to the above formula
So, the value would equal to
= - $246,000 - $157,000
= - $89,000
All other information which is given is not relevant. Hence, ignored it
Mmm I’m thinking it’s The price for the good increases.
