B CVP Analysis, Margin of Safety, Degree of Operating Leverage
Floras Flats produces comfortable and portable womens shoes designed to be worn as a second
pair of shoes after a formal event. The company has the following financial information:
The companys sales price is $ per unit. The variable costs of producing flats is $ per unit.
The company expects to have fixed costs of $ next year. The company expects to sell
pairs of flats next year. Assume no taxes.
a Calculate the breakeven point in units.
b Calculate the breakeven point in dollars.
c How many units must the company sell to reach a target profit of $
d Prepare a budgeted contribution format income statement.
e Compute the margin of safety in both dollar and percentage terms.
f Compute the degree of operating leverage.
g If sales increase by in the following year, how much would net income increase use
the degree of operating leverage to compute your answer
