Lobo, International has two divisions, Manufacturing and Retail which had the following operating results over the last two years:
|
Manufacturing
|
Division
|
Retail Division
|
|
Year 1
|
Year 2
|
Year 1
|
Year 2
|
|
Sales (in units)
|
5,000
|
6,500
|
2,000
|
2,400
|
|
Sales (in dollars)
|
$400,000
|
$520,000
|
$250,000
|
$300,000
|
|
Less cost of goods sold
|
290,000
|
353,000
|
160,000
|
192,000
|
|
Gross margin
|
110,000
|
167,000
|
90,000
|
108,000
|
|
Less selling and administrative expenses
|
50,000
|
59,000
|
52,000
|
56,000
|
|
Net operating income
|
$ 60,000
|
$108,000
|
$ 38,000
|
$ 52,000
|
Assume that the cost structure in each division above did not change over the two years. Use the high-low method as needed to estimate variable and fixed expenses.
Required:
a. Calculate the break-even point in sales dollars for each division.
b. Calculate the degree of operating leverage for the Manufacturing Division for each year.