Patterson Company's variable expenses are 60% of sales. At a $600,000 sales level, the degree of operating leverage is 4. Company chief executive officer has determined to purchase and install a new automated assembly line and replace the traditional manual operation. This new automation model will increase company fixed expenses by 80% but will reduce variable expenses per unit of product to 40% of the product's sales price.
The automation model will increase company's operating leverage. Determine the indifferent point in sales revenue at which the company will earn the same profit under both the traditional and automation models.
A) $640,000
B) $600,000
C) $720,000
D) $460,000
E) None of the above.