Arizona Beverages sells 210,000 bottles of Temple Tingler each year. The product sells for $6.50 per bottle and variable cost per unit is $2.75. Total annual fixed costs are $750,000.
Required
1. What is the degree of operating leverage? What is the break-even point in units?
2. If the company can increase unit sales by 30%, what will be the expected percentage increase in net income? What will be the expected total dollar net income?
3.Use the original data. If the company increases advertising by $22,500, sales in units will increase by 15%. What will be the new break-even point? How much will net income change?