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  • Problem 22 - Locker Company

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    Danielle Millen Antonio
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    The document discusses operating leverage for a locker company that sells units for $600 each with variable costs of $420 per unit. With 40,000 units sold and total fixed costs of $4,500,000, the contribution margin is $7,200,000 and profit is $2,700,000, resulting in a degree of operating leverage of 2.7. If units sold increase to 48,000 next year, profit is expected to increase by 53.34% or $1,440,180 due to the company's operating leverage of 2.667. The margin of safety rate is calculated as 37.5%.

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    PROBLEM 22 - LOCKER COMPANY

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    The document discusses operating leverage for a locker company that sells units for $600 each with variable costs of $420 per unit. With 40,000 units sold and total fixed costs of $4,500,000, the contribution margin is $7,200,000 and profit is $2,700,000, resulting in a degree of operating leverage of 2.7. If units sold increase to 48,000 next year, profit is expected to increase by 53.34% or $1,440,180 due to the company's operating leverage of 2.667. The margin of safety rate is calculated as 37.5%.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    7 views2 pages

    Problem 22 - Locker Company

    Uploaded by

    Danielle Millen Antonio
    The document discusses operating leverage for a locker company that sells units for $600 each with variable costs of $420 per unit. With 40,000 units sold and total fixed costs of $4,500,000, the contribution margin is $7,200,000 and profit is $2,700,000, resulting in a degree of operating leverage of 2.7. If units sold increase to 48,000 next year, profit is expected to increase by 53.34% or $1,440,180 due to the company's operating leverage of 2.667. The margin of safety rate is calculated as 37.5%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    Operating Leverage - Locker Company

    Unit Sales Price P 600 Total Fixed Cost


    Unit Variable Cost 420 Units Sold
    Unit Contribution Margin (600 - 420) 180

    REQ #1 - DOL
    Contribution Margin (40 000 units × P180) P 7 200 000
    Less: Fixed Cost (4 500 000)
    Profit 2 700 000

    DOL = P 7 200 000/ P 2 700 000


    = 2.7

    REQ #2 - If 48 000 units are sold next yr. what is the:

    B. PERCENTAGE CHANGE IN PROFIT A. EXPECTED INCREASE IN PR


    Additional Units 8 000 Profit
    Divide by: Present Units 40 000 Multiply by: Percentage Change i
    20% Expected increase in profit
    Multiply by: DOL 2.667
    PERCENTAGE CHANGE IN PROFIT 53.34%

    REQ. #3 - Margin of safety rate

    MSR = 1/2.667
    = 37.50%
    tal Fixed Cost P 4 500 000
    40 000 units

    EXPECTED INCREASE IN PROFIT


    P 2 700 000
    ltiply by: Percentage Change in Profit 53.34%
    pected increase in profit P 1 440 180

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