Question

Truman Company manufactures a DVD player called Orlicon. The company sells the player to discount stores throughout the country. Click the icon to view additional information.) Information about the current period (2017) and last period (2016) follows. Click the icon to view the information for 2017 and 2016.) Suppose that during 2017, the market for DVD players grew 10%. All increases in market share (that is, sales increases greater than 10%) and decreases in the selling price of the Orlicon are the result of Truman's strategic actions. (Click the icon to view additional information.) (Click the icon to view operating income for 2016 and 2017.) (Click the icon to view the components to explain changes in operating income.) Read the requirement.

Answer 1

Joyce Morphy
Requirement 1
Selling Price per mile	$          0.50
Less : Variable cost per mile	$        (0.20)
Contribution margin per mile	$    0.30
Break Even = Fixed Cost / Contribution margin
$215 / $0.30	717	Miles
Working Note :
Calculation of Variable cost per mile using High low method :
	No of Miles	Total operating costs
High	4400	$                    1,095.00
Low	3300	$                       875.00
Variable cost per mile = (1095-875)/(4400-3300)	$    0.20	per Mile
At 4400 Miles, Total operating costs = $1095
Fixed cost + 4400*$0.20 = $1095
Fixed cost = 1095 - 4400*0.2
$                                                                    215.00
Requirement 2
At 4200 Miles,
Revenue	$   2,100.00
Less : Variable cost	$   (840.00)
Contribution margin	$   1,260.00
Less : Fixed cost	$    (215.00)
Net Operating income	$   1,045.00
Degree of Operating Leverage = Contribution Margin / Net Operating Income
$1260 / $1045	1.2057
Requirement 3
Degree of Operating Leverage = % change in Net income / % change in sales
1.2057 = % change in net income / (25%)
% change in net income = -25%*1.2057	-30.1425%