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Homework answers / question archive / 1) US-Mobile manufactures and sells two products, tablet computers and smartphones, in the ratio of 5:3

1) US-Mobile manufactures and sells two products, tablet computers and smartphones, in the ratio of 5:3

Finance

1) US-Mobile manufactures and sells two products, tablet computers and smartphones, in the ratio of 5:3. Fixed costs are $105,000, and the contribution margin per composite unit is $125. What number of each type of product is sold at the break-even point?

2) Singh Co. reports a contribution margin of $960,000 and fixed costs of $720,000. (1) Compute the company's degree of operating leverage. (2) If sales increase by 15%, what amount of income will Singh Co. expect?

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1) Computation of the number of each type of product is sold at the break-even point:-

Break even point in composite unit = Fixed cost / Contribution margin per composite unit

= $105,000 / $125

= 840 units

Tablet computers = 5 * 840

= 4,200 units

Smart phones = 3 * 840

= 2,520 units

 

2-1) Computation of the degree of operating leverage:-

Net operating income = Contribution margin - Fixed cost

= $960,000 - $720,000

= $240,000

Degree of operating leverage = Contribution margin / Net operating income

= $960,000 / $240,000

= 4

 

2-2) Computation of the amount of income:-

% change income = % change in sales * Degree of operating leverage

= 15% * 4

= 60%

Amount of income = Current income * (1 + % increase in income)

= $240,000 * (1 + 60%)

= $384,000

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