Break-Even Analysis
Kelly Rosales
FIN/200
September 6, 2013
Albert Schweigert

Break-Even Analysis
13. Healthy Foods, Inc., sells 50-pound bags of grapes to the military for $10 a bag. The fixed costs of this operation are $80,000, while the variable costs of the grapes are $.10 per pound. A. What is the break-even point in bags?
BE=Fixed costsContribution margin=Fixed costsPrice-Variable cost per unit=FCP-VC
BE=$80,000$10-($.10×50)=$80,000$5=16,000

B. Calculate the profit or loss on 12,000 bags and on 25,000 bags.

C. What is the degree of operating leverage at 20,000 bags and at 25,000 bags?
DOL=Q (P-VC)Q P-VC-FC
Q represents beginning units sold (all calculations should be done at this level).
P can be found by dividing total revenue by units sold.
VC can be found by dividing total variable costs by units sold.
DOL 20,000 bags=20,000 $10-$520,000 $10-$5-$80,000=$100,000$20,000=5.0x
DOL 25,000 bags=25,000 $10-$525,000 $10-$5-$80,000=$125,000$45,000=2.78x
Why does the degree of operating leverage change as the quantity sold increases?
The closer the degree of operating leverage is calculated to the corporation’s break-even point, the higher the number will be because a large ratio increase in the income of operation (Block, Hirt, & Danielsen, 2009). The degree of operating leverage changes as the quantity sold increases because degree of operating leverage measures the percentage adjustment in operating income as a result of a percentage change in volume.

D. If Healthy Foods has an annual interest expense of $10,000, calculate the degree of financial leverage at both 20,000 and 25,000 bags.
DFL=Percent change in EPSPercent change in EBIT
DFL 20,000=EBITEBIT-I=20,00020,000-10,000=2.0x
DFL 25,000=EBITEBIT-I=45,00045,000-10,000=1.29x

E. What is the degree of combined leverage at both sales levels?
Degree of combined