Shown here are condensed income statements for two different companies (both are organized as LLCs and pay no income taxes).

Required

1. Compute times interest earned for Ellis Company.

2. Compute times interest earned for Seidel Company.

3. What happens to each company’s net income if sales increase by 40%?

4. What happens to each company’s net income if sales increase by 50%?

5. What happens to each company’s net income if sales increase by 80%?

6. What happens to each company’s net income if sales decrease by 20%?

7. What happens to each company’s net income if sales decrease by 30%?

8. What happens to each company’s net income if sales decrease by 40%?

Analysis Component

9. Comment on the results from parts 3 through 8 in relation to the fixed-cost strategies of the two companies and the ratio values you computed in parts 1 and 2.

Transcribed Image Text:

Ellis Company Seidel Company Sales... Variable expenses (50%) . . Income before interest Interest expense (fixed) Net income $250,000 125,000 125,000 75,000 50,000 .$250,000 187,500 62,500 2,500 50,000 Sales Income before interest Interest expense (fixed) Net income