Question

Allison Radios manufactures a complete line of radio and communication equipment for law enforcement agencies. The average selling price of its finished product is $180 per unit. The variable cost for these same units is $126. Allison Radios incurs fixed costs of $540,000 per year.

a. What is the break-even point in units for the company?

b. What is the dollar sales volume the firm must achieve in order to reach the break-even
point?
 
c. What would be the firm’s profit or loss at the following units of production sold:

12,000 units? 15,000 units? 20,000 units?

d. Find the degree of operating leverage for the production and sales levels given in part c.

Answer 1

a. $S = $C,
180x = 126x + 540,000,
180x - 126x = 540,000,
54x = 540,000,
X = 10,000 Units = Break-even point.

b. S = 180 * 10,000 = $1,800,000 to break-even.

c. Same procedure as a.