Problem:
Mo & Chris's Delicious Burgers, Inc., sells food to Military Cafeterias for $15 a box. The fixed costs of this operation are $80,000, while the variable cost per box is $10.
What is the break-even point in boxes?
Calculate the profit or loss on 15,000 boxes and on 30,000 boxes.
What is the degree of operating leverage at 20,000 boxes and at 30,000 boxes? Why does the degree of operating leverage change as the quantity sold increases?
If the firm has an annual interest expense of $10,000, calculate the degree of financial leverage at both 20,000 and 30,000 boxes.
What is the degree of combined leverage at both sales levels?