Lobo, International has two divisions, Manufacturing and Retail which had the following operating results over the last two years:
|
Manufacturing |
Division |
Retail Division |
||
|
Year 1 |
Year 2 |
Year 1 |
Year 2 |
|
|
Sales (in units) |
5,000 |
6,500 |
2,000 |
2,400 |
|
Sales (in dollars) |
$400,000 |
$520,000 |
$250,000 |
$300,000 |
|
Less cost of goods sold |
290,000 |
353,000 |
160,000 |
192,000 |
|
Gross margin |
110,000 |
167,000 |
90,000 |
108,000 |
|
Less selling and administrative expenses |
50,000 |
59,000 |
52,000 |
56,000 |
|
Net operating income |
$ 60,000 |
$108,000 |
$ 38,000 |
$ 52,000 |
Assume that the cost structure in each division above did not change over the two years. Use the high low method as needed to estimate variable and fixed expenses.
Required:
a. Calculate the break even point in sales dollars for each division.
b. Calculate the degree of operating leverage for the Manufacturing Division for each year.