Question
1. The Montanya Products Business was started in 2011 The founders (Paul and Jane Montanya) are still worried about the ventures liquidity position and the
1. The Montanya Products Business was started in 2011 The founders (Paul and Jane Montanya) are still worried about the ventures liquidity position and the quantity of cash being used. Following are income statements and balance sheets for the Montanya Products Company for 2012 and 2013.
MONTANYA PRODUCTS COMPANY
Income Statement 2012 2013
Net Sales $900,000 $1,600,000
Cost of Goods Sold 540,000 900,000
Gross Profit 360,000 700,000
Marketing 90,000 150,000
General & Administrative 250,000 250,000
Depreciation 40,000 40,000
EBIT -20,000 260,000
Interest 45,000 60,000
Earnings Before Taxes -65,000 200,000
Income Taxes 0 25,000
Net Income (Loss) -$65,000 $175,000
Balance Sheet 2012 2013
Cash $50,000 $20,000
Accounts Receivables 200,000 280,000
Inventories 400,000 500,000
Total Current Assets 650,000 800,000
Gross Fixed Assets 450,000 540,000
Accumulated Depreciation -100,000 -140,000
Net Fixed Assets 350,000 400,000
Total Assets $1,000,000 $1,200,000
Accounts Payable $130,000 $160,000
Accruals 50,000 70,000
Bank Loan 90,000 100,000
Total Current Liabilities 270,000 330,000
Long-Term Debt 300,000 400,000
Common Stock ($.05 par) 150,000 150,000
Additional Paid-in-Capital 200,000 200,000
Retained Earnings 80,000 120,000
Total Liab. & Equity $1,000,000 $1,200,000
- Use the information in Part A to classify specific expense items as being either variable or fixed expenses. Then estimate Montanyas EBDAT breakeven in terms of survival revenues if interest expenses had remained at the 2012 level ($45,000) in 2013.
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- Estimate the dollar amount of survival revenues actually needed by the Montanya Products Company to reach EBDAT breakeven in 2013 given that more debt was obtained and interest expenses increased to $60,000.
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