Case Scenario: Rocky Mount Metals Company manufactures an assortment of wood-burning stoves. The average selling price for the various units is $500. The associated variable cost is $350 per unit. Fixed costs for the firm average $180,000 annually.
Q1. What is the break-even point in units for the company?
Q2. What is the dollar sales volume the firm must achieve to reach the break-even point?
Q3. What is the degree of operating leverage for a production and sales level of 5,000 units for the firm? (Calculate to three decimal places.)
Q4. What will be the projected effect on earnings before interest and taxes if the firm's sales level should increase by 20 percent from the volume noted in part c?
(Keown. Foundations of Finance: The Logic and Practice of Financial Management, 6th Edition. Pearson Learning Solutions 16.18).