Millard’s Enterprises sells wooden baby chairs for $28 per chair. The fixed operating costs are $23,000, and the variable operating cost is $18 per chair.
a. Calculate Millard’s Enterprises’ EBIT with an estimated sales quantity of 12,000 chairs.
b. Calculate EBIT for sales of 10,000 and 14,000 chairs, respectively.
c. Calculate the percentage changes in units sold (with 12,000 chairs as the base level) and related percentage changes in EBIT when sales are 10,000 and 14,000 chairs, respectively.
d. Based on the answer in part c, comment on the sensitivity of changes in EBIT in response to changes in sales.