1. Operating Leverage. High operating leverage means:

1. The company has relatively low fixed costs.

2. The company has relatively high fixed costs.

3. The company will have to sell more units than a comparable company with low operating leverage to break even. 4. The company will have to sell fewer units than a comparable company with low operating leverage to break even. 5. Both (2) and (3) are correct.

6. Both (1) and (4) are correct.

2. Break-Even Point and Target Profit Measured in Units (Multiple Products).

Hi-Tech Incorporated produces two different products with the following monthly data.

Round your answers to the nearest hundredth of a percent and nearest dollar where appropriate. (for example 0.434532 = 43.45 percent; an example for dollar calculations is $378.9787 = $379.)

	Cells	GPS	Total
Sales Price per unit	$100	$400
Variable cost per unit	40	240
Expected sales per unit	21,000	9,000	30,000

Sales mix 70% 30%
Total fixed costs $1,800,000

Assume the sales mix remains the same at all levels of sales.

1. Calculate the weighted average contribution margin per unit.

2. How many units in total must be sold to break even?

3. How many units of each product must be sold to break even?

4. How many units in total must be sold to earn a monthly profit of $180,000?

5. How many units of each product must be sold to earn a monthly profit of $180,000?

6. Using the information provided, prepare a contribution margin income statement for the month similar to the one in Figure 3.4 Income Statement for Amys Accounting Service.

7. Calculate the weighted average contribution margin ratio.

8. Find the break-even point in sales dollars.

9. What amount of sales dollars is required to earn a monthly profit of $540,000?

10. Assume the contribution margin income statement prepared in requirement a is the companys base case. What is the margin of safety in sales dollars?