Break-Even Point and Operating Leverage
Matthew Electronics manufactures a complete line of radio and communications equipment for law enforcement agencies. The average selling price of its finished product is $175 per unit. The variable cost for the same units is $115. Matthew’s incurs
fixed costs of $550,000 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 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 above.