Question 1 Given Sales Rs.100 million, Variable cost Rs.

40 Million
and Fixed Cost Rs.40 Million. Find out the Degree of Operating
Leverage?

Question 02 Given Sales Rs.100 million, Variable cost Rs.48 Million

and Fixed Cost Rs.30 Million. Find out the Degree of Operating
Leverage?

Comprehensive Question:

ECG company sells lightweight tables. One table is sold for $45.
Variable and fixed expenses data is given below:

 Variable expenses per unit: $18

 Fixed expenses per year: $540,000
Required:

1. Compute contribution margin ratio (CM ratio).

2. Compute break-even point in dollars using CM ratio computed in part 1.
3. Using contribution margin ratio calculate increase in net operating income if
sales are increased by $135,000.
4. During the last year, ECG company sold 24,000 lightweight tables.
(a). Compute the degree of operating leverage at the last year’s level of
sales.
(b). If ECG company manages to increase the sales by 15% next year, by
how much should net operating income increase? (Use degree of operating
leverage for your answer).
Question 04 Your client is operating at increasing losses even though revenues
have increased. You find that the issue is increased costs because of a newly
opened factory. The additional fixed costs are still higher than the gain in
revenues, leading to losses.

In this case, we can start by hypothesizing the need to increase revenues to fix
profitability. In this scenario, it would make sense to check the break-even number
of units sold before recommending increased marketing efforts. For a break-even
analysis, you need to have information such as fixed costs, variable costs and price.

Required data

1. Yearly fixed costs: $50m

2. Average variable cost/product: $1000
3. Average price/product: $1500

Calculate Break even (Units ) and explain decision