Stallings Specialty Paint Company has fixed operating costs of $3 million a year. Variable operating costs are $1.75 per half pint of paint produced, and the average selling price is $2 per half pint.
a. What is the annual operating break even point in half pints (QBE)?In dollars of sales (SBE)?
b. If variable operating costs decline to $1.68 per half pint, what would happen to the operating break even point (QBE)?
c. If fixed costs increase to $3.75 million per year, what would be the effect on the operating break even point (QBE)?
d. Compute the degree of operating leverage (DOL) at the current sales level of 16 million half pints.
e. If sales are expected to increase by 15 percent from the current sales position of 16 million half pints, what would be the resulting percentage change in operating profit (EBIT) from its current position?