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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. 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?
Expert Solution
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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