Offshore Petroleum's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000.Selling price per barrel of oil is $18 and variable costs per barrel are $10.
(a) Determine the breakeven output (in dollars).
(b) Determine the number of barrels of oil that offshore must produce and sell in order to earn a target (operating) profit of $1,500,000.
(c) Determine the degree of operating leverage at an output of 400,000 barrels.
(d) Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.

Question

Offshore Petroleum's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000.Selling price per barrel of oil is $18 and variable costs per barrel are $10.
(a)	Determine the breakeven output (in dollars).
(b)	Determine the number of barrels of oil that offshore must produce and sell in order to earn a target (operating) profit of $1,500,000.
(c)	Determine the degree of operating leverage at an output of 400,000 barrels.
(d)	Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.

Quizplus · Accepted Answer

The Answer of Offshore Petroleum's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000.Selling price per barrel of oil is $18 and variable costs per barrel are $10.
(a)	Determine the breakeven output (in dollars).
(b)	Determine the number of barrels of oil that offshore must produce and sell in order to earn a target (operating) profit of $1,500,000.
(c)	Determine the degree of operating leverage at an output of 400,000 barrels.
(d)	Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.

Offshore Petroleum's Fixed Costs Are $2,500,000 and Its Debt Repayment