# Answer to Question #13072 in Economics of Enterprise for Muna

Question #13072

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).

(3 marks)

(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.

(3 marks)

(c) Determine the degree of operating leverage at an output of 400,000 barrels.

(3 marks)

(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.

$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).

(3 marks)

(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.

(3 marks)

(c) Determine the degree of operating leverage at an output of 400,000 barrels.

(3 marks)

(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.

Expert's answer

(a)&

Breakeven output = $2,500,000/($18-$10)=312 500

(b)

Output = 312 500 +$1,500,000/($18-$10)= 500 000

Breakeven output = $2,500,000/($18-$10)=312 500

(b)

Output = 312 500 +$1,500,000/($18-$10)= 500 000

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