Tyrene products manufactures recreational equipment. One of the company's products, a skateboards, sells for $32. the skateboards manufactured in as antiquated plant that relies heavily on direct labor workers. Thus variable costs are high, totaling $22.40 per skateboard of which 70% is direct labor cost. Over the past year the company sold 45,000 skateboard, with the following operating results:
Sales (45,000 skateboard) $1,440,000
Variable expenses 1,008,000
Contribution margin 432,000
Fixed expenses 288,000
Net operating income $ 144,000
Management anxious to maintain and perhaps even improve its present level of income form the skateboard.
Required:
a. Compute the CM ratio and the break-even point in skateboards.
b. Compute the degree of operating leverage at last year's level of sales.