Remember to complete all parts of the problems and report the results of your analysis. Do not forget to show the necessary steps and explain how your attained that outcome. Everything should be done in EXCEL including any conclusions in 50 words or less.
Problem 12-4 Leverage Analysis: You have developed the following income statement for your corporation. It represents the most recent year’s operations, which ended yesterday.
Sales $45,750,000
Variable costs 22,800,000
Revenue before Fixed costs $22,950,000
Fixed Costs 9,200,000
EBIT $13,750,000
Interest Expense 1,350,000
Earnings Before Taxes $12,400,000
Taxes @ 50% 6,200,000
Net Income $6,200,000
Your supervisor in the controller’s office has just handed you a memorandum asking for written responses to the following questions: a. What is the firm’s break even point in sales dollars? b. If sales should increase by 25% by what percent would earnings before taxes (and net income) increase?
a.S*===
==$18,326,693.23
b.(25%) (1.85)=46.25%
Problem 12-8 Operating Leverage Rocky Mount Metals Company manufactures an assortment of wood burning stoves. The Average selling price for the various units is $500.00 The associated variable cost is $350 per unit. Fixed costs for the firm average $180,000 annually.
A. What is the break –even point in units for the company
B. What is the dollar sales volume the firm must achieve to reach the break even point?
C. What is the degree of operation leverage for a production and sales level of 5000 units for the firm? (calculate to three decimal places.)
D. What will be the projected effect on earnings before interest and taxes if the firm’s sales level should increase by 20 percent from the volume noted in part
(a) QB= = = 1,200 units
(b)S* = = = $600,000
(c)DOL$2,500,000 =
= 1.316 times
(d)(20%) x (1.316) = 26.32% Increase