Q2. Year A Year B

Sales $120,000 $150,000

CGS 80,000 90,000

GP 40,000 60,000

OPE 35,000 47,500

EBIT 5,000 12,500

Interest 4,000 4,000

EBT 1,000 8,500

Tax(40%) 400 3,400

NI $ 600 $ 5,100

Let TC (total op. cost) = CGS + OPE (operating cost). Then TC = Fixed + v*Sales

Determine the parameters, fixed and v. [That is, estimate the underlying linear function]

TC $115,000 $137,500

Sales 120,000 150,000

Recast the year A I/S into the contribution margin [CM] format.

a.

25 marks

Suppose sales are expected to decline by 10% next year (Year A is the current year). What NOPAT should the company expect next year? What about NI?

b.

25 marks

Recast the year B I/S into the contribution margin [CM] format.

Suppose sales are expected to decline by 10% next year (Year B is the current year). What NOPAT should the company expect next year? What about NI?