Question
Sport Time Company (SPT) produces head covers for golf clubs. The company expects to generate a profit next year. It anticipates the following for next
Sport Time Company (SPT) produces head covers for golf clubs. The company expects to generate a profit next year. It anticipates the following for next year, 2023: Fixed manufacturing costs $100,000 Fixed general & administrative expenses $70,000 Variable manufacturing costs per unit of product $3.00 Variable selling costs per unit $1.50 Each unit of product will sell for $12.00 1) (a) Compute the breakeven point in sales units. . (b) Compute the breakeven point in sales dollars. 2) How many head covers the company must sell to have $ 6,000 earnings before interest and taxes? Compute the revenue of the company in this case. 3) Due to inflation, the selling price has increased by 10% per unit and fixed general and administrative expenses are increased by 5%, what would the new breakeven point be in units and dollars? How many head covers must the company sell to have $ 7,000 earnings before interest and taxes in this case? Compute the revenue of the company in this case. 4) If SPT currently sells, 40,000 items per year compute the operating leverage, in the base case scenario (price= $12, administrative expenses=$70,000) and in the second scenario (new price, new administrative expenses). Comment on your results 5) SPT has $ 5,000 in interest expenses. What is their financial leverage at 40,000 items per year? What is their combined leverage? In the base case scenario (price= $12,administrative expenses=$70,000) and in the second scenario (new price, new administrative expenses). Comment on your results
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