##### Question on operating leverage

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The Poseidon Swim company produces swim trunks. The average is \$77.47, variable cost per unit is \$23.47, the average fixed cost is \$5,267.

Assume that current level is 390 units. What will be the resulting percentage change in EBIT if they expect units sold to change by -4.4% (You should calculate the degree of operating leverage first).

Oct 3rd, 2015

 Units Units sold 390 372.84 Sales = units x \$77.47 \$30,213.30 \$28,883.91 Less: Variable Cost = Units x \$23.47 -\$9,153.30 -\$8,750.55 Contribution Margin \$21,060.00 \$20,133.36 Less: Fixed Cost -\$5,267.00 -\$5,267.00 EBIT \$15,793.00 \$14,866.36 Change in EBIT = (\$14,866.36-\$15,793)/\$15,793 -5.87% Units Changed = 390 x (1-4.4%) \$372.84

Oct 3rd, 2015

My professor came up with -5.90. I'm trying to figure out how she got this number. Yours is really close.

Oct 3rd, 2015

 Units \$390 Degree of operating Leverage = Fixed cost/(Total Cost) 36.52% Degree of operating Leverage = Change in EBIT/ Change in sales 37% = change in EBIT/-4.4% Change in EBIT -1.61%
change in EBIT.xlsx

Oct 3rd, 2015

Oct 3rd, 2015

oh okay. Thank you!! Could you help me with the other questions I posted?

Oct 3rd, 2015

Oct 3rd, 2015

Oct 3rd, 2015

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Oct 3rd, 2015
Oct 21st, 2017
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