Degree of operating leverage change as sold increases

Question

Task: Break-even point and degree of leverage

University Catering sells 50-pound bags of popcorn to university dormitories for $10 a bag. The fixed costs of this operation are $80,000, while the variable costs of the popcorn are $.10 per pound.

Question 1. What is the break-even point in bags?

Question 2. Calculate the profit or loss on 12,000 bags and on 25,000 bags.

Question 3. What is the degree of operating leverage at 20,000 bags and at 25,000 bags? Why does the degree of operating leverage change as the quantity sold increases?

Question 4. If University Catering has an annual interest expense of $10,000, calculate the degree of financial leverage at both 20,000 and 25,000 bags.

Question 5. What is the degree of combined leverage at both sales levels?