2. Impact on breakeven point if sale price, variable costs, and fixed costs change
Dependable Drivers Driving School charges $250 per student to prepare and administer written and driving tests. Variable costs of $100 per student include trainers? wages, study materials, and gasoline. Annual fixed costs of $75,000 include the training facility and fleet of cars.
Requirements
1. For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided:
a. Breakeven point with no change in information.
b. Decrease sales price to $220 per student.
c. Decrease variable costs to $50 per student.
d. Decrease fixed costs to $60,000.
2. Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units.
3. Rodneys repair shop as a monthly target profit of 15,000. Variable costs are 75 of sales and monthly fixed costs are $10,000.
A. Compute the monthly margin of safety in dollars if the shop achieves its income goal.
B. Express Rodneys margin of safety as a percentage of target sales.
4. Income statement
Sales Revenue:35000
Variable costs:15,000
Contribution Margin:20,000
Fixed Costs:12,500
Operating Income:7,500
A. Calculate the degree of leverage.
B. Use the degree of operating leverage calculated in requirement 1 to estimate the change in operating income if total sales increase b 15%.
C. Verify your answer in requirement 2 b preparing a contribution margin income statement with the total sales increase of 15%.