China America Manufacturing is evaluating two different operating structures which are described below. The firm has annual interest expense of $250, common shares outstanding of 1,000, and a tax rate of 40 percent. 
(a) For each operating structure, calculate
(a1) EBIT and EPS at 10,000, 20,000, and 30,000 units.
(a2) the degree of operating leverage (DOL) and degree of total leverage (DTL) using 20,000 units as a base sales level.
(a3) the operating breakeven point in units.
(b) Which operating structure has greater operating leverage and business risk?
(c) If China America projects sales of 20,000 units, which operating structure is recommended?
Definitions:
Behaviorism
A theoretical approach that emphasizes the study of observable behavior and the role of environmental forces in shaping behavior, often disregarding internal mental states.
Milieu Therapy
A therapeutic approach that utilizes the environment to positively influence the patient's behavior and emotional state.
Therapeutic Community
A structured environment where individuals with substance abuse disorders or mental health conditions live and work as a community to support each other's recovery.
Custodial
Pertaining to the legal responsibility over another individual, such as a child or an elderly, or managing property and assets for them.
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