In addition, the exchange provides an avenue for recourse if some remedy is required for a fraudulent transaction. Problem 15-12.

The operating asset turnover of 5 times on operating assets of $20 million implies a total sales of $100 million. The return on operating assets being 25% indicates net profit of $5 million. The total costs therefore are $95 million.

DOL = Contribution Margin / Operating Margin

In this case, the operating margin is 5%, so the contribution margin would be 20%. This indicates that COGS is 80% of revenues or $80 million. That leaves $15 million as fixed costs. With a COGS of $8 per unit ($80 million / 10 million) and contribution per unit of $2 the break-even volume would be:

$15 million / $2 = 7.5 million units.

Problem 15-13.

a) the breakeven point in units for the company is as follows:

$180 - $126 = Contribution = $54 per unit. Breakeven = $540,000 / 54 = 10,000 units.

b) Dollar sales to reach breakeven would be 10,000 * $180 = $1.8 million

c)...

For example, the move from 12,000 to 15,000 delivers an increase in operating income of 150% with a 25% change in sales, implying a 6 times operating leverage. Between 15,000 and 20,000, the increase in sales is 33.3%, the increase in net income is 100%, so the degree of operating leverage is 3%. The degree of operating leverage typically declines…