Question
Below is an income statement for XYZ Company: Sales $400,000 Variable costs (100,000) Contribution margin $300,000 Fixed costs (250,000) Net Income $ 50,000 1. Based
Below is an income statement for XYZ Company:
| Sales | $400,000 |
| Variable costs | (100,000) |
| Contribution margin | $300,000 |
| Fixed costs | (250,000) |
| Net Income | $ 50,000 |
1. Based on the cost and revenue structure on the XYZ income statement, what was the break-even point in sales dollars (using the Y-formula)?
| a. | $666,667
|
| b. | $566,667
|
| c. | $433,333
|
| d. | $333,333 |
2. What was the XYZ's margin of safety (rounded to the nearest whole number)?
| a. | 14% |
| b. | 17% |
| c. | 20% |
| d. | 23% |
3. What was the XYZ's Degree of Leverage (DOL)?
| a. | 4.00 |
| b. | 5.00 |
| c. | 6.00 |
| d. | 7.00 |
4. Using the DOL that you just calculated (or any other method), if XYZ expects sales to increase 10% next year, what will the new net income be next year?
-
$65,000
-
$70,000
-
$75,000
-
$80,000
-
$85,000
5. Based on the cost and revenue structure on the XYZ income statement, XYZ is earning a net income equal to 12.5% ($50,000/$400,000) of sales. In order to earn a target net income equal to 25% of sales, what would the sales dollars have to be (using the Y-formula)?
| a. | $200,000
|
| b. | $300,000
|
| c. | $400,000
|
| d. | $500,000
|
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Essentials Of Federal Taxation 2018
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver
9th Edition
9781260007640
