a Breakeven = Fixed Cost / (Selling Price - Variable Cost)
Breakeven = $80,000 / ($10 - $0.10 x 50)
Breakeven = $80,000 / $5
Breakeven = 16,000 bags
b @ 12,000
Sales 120 000
Variable Cost 60 000
Contribution Margin 60 000
Fixed Cost 80 000
EBIT (20 000)
c DOL (20,000) = [Quantity x (Selling Price - Variable Cost)] / [Quantity x (Selling Price - Variable Cost) - Fixed Cost]
DOL (20,000) = [20,000 x ($10 - $5)] / [20,000 x ($10 - $5) - $80,000]
DOL (20,000) = $100,000 / $20,000
DOL = 5.0 times
DOL (25,000) = [Quantity x (Selling Price - Variable Cost)] / [Quantity x (Selling Price - Variable Cost) - Fixed Cost]
DOL (25,000) = [25,000 x ($10 - $5)] / [25,000 x ($10 - $5) - $80,000]
DOL (25,000) = $125,000 / $45,000
DOL = 2.78 times
The DOL decreases as the quantity sold increases because firm is now operating at a larger profit.
d @ 20,000
Sales 200 000
Variable Cost 100 000
Contribution Margin 100 000
Fixed Cost 80 000
EBIT 20 000
DFL (20,000) =EBIT / (EBIT - Interest)
DFL (20,000) = $20,000 / ($20,000 - $10,000)
DFL (20,000) = $20,000 / $10,000
DFL (20,000) = 2.0 times
DFL (25,000) =EBIT / (EBIT - Interest)
DFL (25,000) = $45,000 / ($45,000 - $10,000)
DFL (25,000) = $45,000 / $35,000
DFL (25,000) = 1.29 times
e DCL (20,000) = DOL x DFL
DCL (20,000) = 5.0 x 2.0
DCL (20,000) = 10.0 times
DCL (25,000) = DOL x DFL
DCL (25,000) = 2.79 x 1.29
DCL (25,000) = 3.57 times**