Examining the Breakeven Point of Hightech Inc.
Order ID:89JHGSJE83839 Style:APA/MLA/Harvard/Chicago Pages:5-10 Instructions:
Examining the Breakeven Point of Hightech Inc.
HighTech Inc. and OldTime Co. compete within the same industry and had the following operating results in 2019:
HighTech Inc.OldTime Co.Sales$420,000$420,000
Variable expenses84,000252,000
Contribution margin$336,000$168,000
Fixed expenses294,000126,000
Operating income$42,000$42,000
Required:
- Calculate the breakeven point for each firm in terms of revenue.
- What observations can you draw by examining the breakeven point of each firm given that they earned an equal amount of operating income on identical sales volumes in 2019?
- Calculate the amount of operating income (or loss) that you would expect each firm to report in 2020 if sales were to1. Increase by 20%.2. Decrease by 20%.
- Using the amounts computed in requirement c, calculate the increase or decrease in the amount of operating income expected in 2020 from the amount reported in 2019.
- Explain why an equal percentage increase (or decrease) in sales for each firm would have such differing effects on operating income.
- Calculate the ratio of contribution margin to operating income for each firm in 2019.
- Multiply the expected increase in sales of 20% for 2020 by the ratio of contribution margin to operating income for 2019 computed in requirement f for each firm
- Multiply your answer in requirement g by the operating income of $42,000 reported in 2019 for each firm.
i.Compare your answer in requirement h with your answer in requirement d. What conclusions can you draw about the effects of operating leverage from the steps you performed in requirements f, g, and h?