# break even point and effects operating leverage profitablity

Inman Manufacturing Company makes a product that it sells for \$60 per unit. The company incurs

variable manufacturing costs of \$24 per unit. Variable Selling expenses are \$12 per unit, annual fixed

manufacturing costs are \$189,000, and fixed selling and administrative costs are \$141,000 per year.

Determine the break-even point in units and dollars using the following approaches.

a. Equation method

b. Contribution margin per unit

c. Contribution margin ratio

d. Confirm  your results by preparing a contribution margin income statement for the break-even

sales volume.

Then the next problem I have is this.

Webster Training Services (WTS) provides instruction on the use of computer software for the

employees of its corporate clients. It offers courses in the clients offices on the clients equipment. The

only major expense WTS incurs is instructor salaries; it pays instructors \$5,000 per course taught. WTS

recently agreed to offer a course of instruction to the employees of Chambers Incorporated at a price of

\$400 per student. Chambers estimated that 20 students would attend the course.

Base your answer on the preceding information:

a. Relative to the number of students in a single course, is the cost of instruction a fixed or variable

cost? Pretty sure this is variable?

b. Determine the profit, assuming 20 students attend the course.

c. Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases to

22 students). What is the percentage change in profitability?

d. Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment decreases

to 18 students). What is the percentage change in profitability?

e. Explain why a 10 percent shift in enrollment produces more than a 10 percent shift in

profitability. Use the term that identifies this phenomenon.

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