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. Determine the breakeven output (in dollars). (a) (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 requirements are $1,000,000. Selling price per barrel of oil is $18 and variable costs per barrel are $10. Determine the breakeven output (in dollars). (a) (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.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 1E

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