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As the Financial Controller for a manufacturing firm, you have constructed the following partial pro forma income statement for the next fiscal year: RM000Sales (80,000
As the Financial Controller for a manufacturing firm, you have constructed the following partial pro forma income statement for the next fiscal year:
RM000Sales (80,000 units)1,252.0Variable costs(438.2)Contribution margin813.8Fixed costs(340.0)Operating income473.8Interest(93.8)Earnings before taxes380.0Taxes @ 26%(98.8)Net income281.2
- Calculate the break-even point in units.
- Calculate the break-even point in RM.
- Assume that the management is considering revising the sales price downward to RM 13.40 to increase the sales volume by 25%. Is the revised price a better alternative?
- Calculate the degree of operating leverage at this level of output.
- Calculate the degree of financial leverage.
- Determine the degree of combined leverage.
- If sales increase by 15%, what will be the new level of the companys EPS if it has 200,000 shares outstanding?
- Define and briefly discuss the dangers to a firm of having a high level of:
- Operating leverage
- Financial leverage
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Quantitative Analysis for Management
Authors: Barry Render, Ralph M. Stair, Michael E. Hanna, Trevor S. Ha
12th edition
133507335, 978-0133507331
