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Using the income statement below, compute the following items. Round answers to two decimal places. Sales $ 880,000 Variable costs 528,000 Contribution margin 352,000 Fixed
Using the income statement below, compute the following items. Round answers to two decimal places. Sales $ 880,000 Variable costs 528,000 Contribution margin 352,000 Fixed operating costs 220,000 Earnings before interest and taxes 132,000 Interest expense 72,600 Earnings before taxes 59,400 Taxes (30%) 17.820 Earnings after taxes 41,580 Note: The company sold 8,000 units during the year Required: 1. Calculate the breakeven point in sales dollars, assuming that interest is a fixed costs (2 marks) 2. Assuming the company would like to have a minimum of $80,000 in earning before taxes. a) What is the minimum sales amount in dollars that will need to be maintained? (2 marks) b) How many units would they need to sell? (1 mark) 3. a) Calculate the Degree of Operating Leverage (2 marks) b) Calculate the Degree of Financial Leverage (2 marks) c) Calculate the Degree of Combined Leverage (2 marks) 4. Using the appropriate degree of leverage from above and assuming that sales decreased by 15%, a) Calculate the expected percentage change in net income. Do not prepare a new income statement. (1 mark) b) Compute the new net income in dollars (2 marks) Required: 1. Calculate the breakeven point in sales dollars, assuming that interest is a fixed costs (2 marks) I 2. Assuming the company would like to have a minimum of $80,000 in earning before taxes. a) What is the minimum sales amount in dollars that will need to be maintained? (2 marks) b) How many units would they need to sell? (1 mark) 3.a) Calculate the Degree of Operating Leverage (2 marks) b) Calculate the Degree of Financial Leverage (2 marks) c) Calculate the Degree of Combined Leverage (2 marks)
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