The company's fixed costs are 2,500,000 dollars and its debt repayment requirements are 1,000,000. Selling price per barrel of oil is 18 dollars and variable costs per barrel are 10 dollars.
1. Calculate the break even output (in dollars)
2. Calculate the number of barrels of oil that the company must form and sell in order to earn a target (operating) profit of the 1,500,000 dollars.
3. Determine the degree of operating leverage at an output of the 400,000 barrels.