1. a. Selling price... $25 100%
Less variable expenses ... 15 60
Contribution margin ... $10 40%
Sales = Variable expenses + Fixed expenses + Profits
$25Q = $15Q + $210,000 + $0
$10Q = $210,000
Q = $210,000 ÷ $10 per ball
Q = 21,000 balls
Alternative solution:
Fixed expenses
Break-even point= in unit sales Unit contribution margin
$210,000
= =21,000 balls
$10 per ball
b. The degree of operating leverage would be:
Contribution margin
Degree of =
operating leverage Net operating income
$300,000
= =3.33 (rounded)
$90,000
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