Speedy Mouse Inc. makes a special mouse for computers. Each mouse sells for $25 and annual production and sales are 120,000 units. Costs for each mouse are as follows:
Direct material ……………………$ 6.00
Direct labor………………………. 3.00
Variable overhead……………….. 0.80
Variable selling expenses………. 2.20
Total variable cost………………$12.00
Total fixed overhead…………… $589,550
a. Calculate the unit in dollars and the ratio for the product.
b. Determine the break-even point in number of mice.
c. Calculate the dollar break-even point using the ratio.
d. Determine Speedy Mouse Inc.’s margin of safety in units, in sales dollars, and as a percentage.
e. Compute Speedy Mouse Inc.’s degree of operating leverage. If sales increase by 25 percent, by what percentage would before-tax income increase?
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