Fixed expenses

by | Nov 11, 2021 | Homework Help

Enter a formula into each of the cells marked with a ?Chapter 5, pages 211-213, Requirements 1-5. You must work the entire problem which includes answering the theory questions.You should proceed to the require?ents below only ?fter co?pleting your worksheet.Required: 1. Check your worksheet by changing the fixed expenses to $270,000. If your worksheet is operating properly, the degree of operating leverage should be 10. If you do not get this answer, find the errors in your worksheet and correct them. How much is the margin of safety percent-age? Did it change? Why or why not?2. Enter the following data from a different company into your worksheet:10,000 units$120 per unit$72 per unitFixed expenses. . . . . . . . . . . . . . . $420,000 What is the margin of safety percentage? What is the degree of operating leverage?3. Using the degree of operating leverage and without changing anything in your worksheet, calculate the percentage change in net operating income if unit sales increase by 15%.4. Confirm the calculations you made in part (3) above by increasing the unit sales in your work-sheet by 15%. What is the new net operating income and by what percentage did it increase?5.Thad Morgan , a motorcycle enthusiast, has been exploring the possibility of relaunching the Western Hombre brand of cycle that was popular in the 1930s. The retro-look cycle would be sold for $10,000 and at that price, Thad estimates 600 units would be sold each year. The variable cost to produce and sell the cycles would be $7,500 per unit. The annual fixed cost would be $1,200,000.a. What would be the break-even unit sales, the marrgin of safety in dollars, and the degree of operating leverage? b. Thad is worried about the selling price. Rumors are circulating that other retro brands of cycles mayy be revived. If so, the selling price for the Western Hombre would have to be reduced to $9,000 to compete effectively. In that event, Thad would also reduce fixed expenses by $300,000 by reducing advertising expenses, but he still hopes to sell 600 units per year. Do you think this is a good plan? Explain. Also, explain the degree of operating leverage that appears on your worksheet

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