Accounting : A company has variable costs of $22.50

Subject: Business    / Accounting
Question

A company has variable costs of $22.50, total fixed costs of $21,700,000 and plans to sell its product for $38.00. In 2015 it sold 2,200,000 units of product.

a) breakeven in units and dollars;

b) assume management wants to earn $15,000,000 in operating income, how many units must be sold;

c) assume income tax rates are 35% of pre-tax income and management wants to earn $13,000,000 after tax- how many units are required;

d) for 2015 what is the margin of safety in dollars and percentage;

e) what is the operating leverage in 2015; the production manager wants to automate production and lower variable costs by $2 per unit and spend an additional $4,000,000 fixed costs per year- is this a good idea?

The sales manager wants to drop prices by $2 per unit and spend an added $300,000 on advertising, while volume increase by 150,000 units- is this a good idea?