Stallings Specialty Paint Company has fixed operating costs of $3 million a year. Variable operating costs are

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Question:

Stallings Specialty Paint Company has fixed operating costs of $3 million a year. Variable operating costs are $1.75 per half pint of paint produced, and the average selling price is $2 per half pint.

a. What is the annual operating break-even point in half pints (QBE)? In dollars of sales (SBE)?

b. If variable operating costs decline to $1.68 per half pint, what would happen to the operating break-even point (QBE)?

c. If fixed costs increase to $3.75 million per year, what would be the effect on the operating break-even point (QBE)?

d. Compute the degree of operating leverage (DOL) at the current sales level of 16 million units.

The Andrea S. Fault Seismometer Company is an all-equity-financed firm. It earns monthly, after taxes, $24,000 on sales of $880,000. The tax rate of the company is 40 percent. The company's only product, "The Desktop Seismometer," sells for $200, of which $150 is variable cost.

a. What is the company's monthly fixed operating cost?

b. What is the monthly operating break-even point in units? In dollars?

c. Compute the degree of operating leverage (DOL) versus quantity produced and sold for the following possible monthly sales levels: 4,000 units; 4,400 units; 4,800 units; 5,200 units; 5,600 units; and 6,000 units.