If the company is currently selling 20,000 tires monthly, what is the degree of operating leverage?

(CVP; operating leverage; income statement) Racine Tire Co. manufactures tires for all-terrain vehicles. The tires sell for $60 and variable cost per tire is $30; monthly fixed cost is $450,000.

a. What is the break-even point in units and sales dollars?

b. If Ronnie Rice, the company’s CEO, wants the business to earn a pre-tax profit of 25 percent of revenues, how many tires must be sold each month?

c. If the company is currently selling 20,000 tires monthly, what is the degree of operating leverage?

d. If the company can increase sales volume by 15 percent above the current level, what will be the increase in net income? What will be the new net income? Prove your calculations with an income statement.