Answer:
Explanation:
Answer a.
Maximum Operating Loss will occur when sale is $0.
If Sale is $0, then Variable Cost will also be $0 and Fixed Cost will be $600,000
Operating Profit = Sales – Variable Expenses – Fixed Cost
Operating Profit = - 600,000
Operating Profit = $ - 600,000
Answer b.
Maximum Operating Loss will occur when sale is $2,500,000.
Units Sold = 20,000 ($2,500,000 / 125)
If Sale is $2,500,000, then Variable Cost will also be $1,500,000 ($75×20,000) and Fixed Cost will be $600,000
Operating Profit = Sales – Variable Expenses – Fixed Cost
Operating Profit = 2,500,000 – 1,500,000 - 600,000
Operating Profit = $ 400,000
Answer c.
4,800 Units :
Operating profit = $125×4,800 - $75×4,800 – 600,000
Operating profit = $ - 360,000
8,000 units :
Operating profit = $125×8,000 - $75×8,000 – 600,000
Operating profit = $ - 200,000
12,000 Units :
Operating profit = $125×12,000 - $75×12,000 – 600,000
Operating profit = $ 0
16,000 Units :
Operating profit = $125×16,000 - $75×16,000 – 600,000
Operating profit = $ 200,000
20,000 Units :
Operating profit = $125×20,000 - $75×20,000 – 600,000
Operating profit = $ 400,000
4,800 Units          Operating Loss Area
8,000 Units          Operating Loss Area
12,000 Units          Break-even Point
16,000 Units          Operating Profit Area
20,000 Units          Operating Profit Area
Answer d.
Break-even Sales = 12,000 Units as there is neither operating profit nor loss.
