Carlyle Lighting Products produces two different types of lamps: a floor lamp and a desk lamp. Floor lamps sell for $30, and desk lamps sell for $20. The projected income statement for the coming year follows:
Sales $600,000
Total Variable Cost 400,000
Contribution Margin $200,000
total fixed cost 150,000
operating income $50,0000
The owner of Carlyle estimates that 60 percent of the sales revenues will be produced by floor lamps and the remaining 40 percent by desk lamps. Floor lamps are also responsible for 60 percent of the variable cost. Of the fixed cost, one-third is common to both products, and one-half is directly traceable to the floor lamp product line.
Required:
1. Compute the sales revenue that must be earned for Carlyle to break even.
2. Compute the number of floor lamps and desk lamps that must be sold for Carlyle to break even.
3. Compute the degree of operating leverage for Carlyle. Now assume that the actual revenues will be 40 percent higher than the projected revenues. By what percentage will profits increase with this change in sales volume?