Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Analysis For Financial Management

Authors: Robert C. Higgins

12th International Edition

1260091910, 9781260091915

More Books

Students also viewed these Finance questions

Question

=+2. What different types of products exist in the book industry?

Answered: 1 week ago