OceanGate sells external hard drives for $280 each. Its total fixed costs are $30 million, and...

4.4 Ratings (802 Votes)

Selling Price = $280

Variable Cost = $230

Contribution Per unit = $50

Total fixed cost = $30,000,000

Break even sales = $30,000,000/$50 = 600,000 units

Profit after tax incase firm has recession = $14,000,000

	Recession	Strong	% Change
No of units sold	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1,000,000	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2,000,000
Sales	$Â Â Â Â Â Â Â Â Â Â Â Â 280,000,000	$Â Â Â Â Â Â Â Â Â Â Â Â 560,000,000	100
Contribution per unit	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 50	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 50
Total contibution	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â 50,000,000	$Â Â Â Â Â Â Â Â Â Â Â Â 100,000,000
Fixed Costs	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â 30,000,000	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â 30,000,000
EBIT	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â 20,000,000	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â 70,000,000	250
Tax @ 30%	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 6,000,000	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â 21,000,000
PAT	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â 14,000,000	$Â Â Â Â Â Â Â Â Â Â Â Â Â Â 49,000,000


Degree of operating levarage	% Change in EBIT
	% Change in Sales

	= 250/100
	\"= 2.5

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