1)

Unit Contribution Margin 37.50-22.50 15

Contribution Margin Ratio 15 0.4 40 %

37.5

Break-even Point in units 480,000 32000 Skateboards

15

Degree of Operating leverage 600,000 5 Times

120,000

2)
Unit Variable Cost 22.50+3 25.5

Unit Contribution Margin 37.50-25.50 12

Contribution Margin Ration 12 0.32 32 %

37.5

Break-even Points in units 480,000 40000 Skateboards

12

3)
Required Sales Volume 480,000+120,000 600000 50000 Skateboards
12
 4)
Variable Cost Ratio 100%-40% 60.0%

Required Selling Price 25.5 42.5

60%

5)
Unit Variable Cost 22.50*60% 13.5

Unit Contribution Margin 37.50-13.50 24

Contribution Margin Ratio 24 0.64 64 %

37.5

Total Fixed Expenses 480,000*190% 912000

Break-even Point in units 912000 38000 Skateboards

24

6a)
Required Sales Volume 1,032,000 43000 Skateboards
24

6b)
Sales 40,000 SB * 37.50 1500000
less: Variable Cost 40,000 SB * 13.50 540000
Contribution Margin 960000
less: Fixed Expenses 912000
Net Operating Income 48000

Degree of Operating Leverage 960000 20 Times

48000

6c)
We will examine if the new plant will be helpful to the firm. If the new plant is completed, the degree of operating leverage
will be 20 times more than it was with the original data of 5 times. Net operating income will rise by 20 for every increase in sales.
As a result, the corporation ought to build the new facility since it will eventually improve its operations.