Question
Using the income statement below compute the following items. Sales $1,250,000 25 Variable costs 750,000 15 Contribution margin 500,000 10 40% Fixed operating costs 200,000
Using the income statement below compute the following items.
| Sales | $1,250,000 | 25 |
|
| Variable costs | 750,000 | 15 |
|
| Contribution margin | 500,000 | 10 | 40% |
| Fixed operating costs | 200,000 |
|
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| Earnings before interest and taxes | 300,000 |
|
|
| Interest | 125,000 |
|
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| Earnings before taxes | 175,000 |
|
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| Taxes (30%) | 52,500 |
|
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| Net income | $122,500 |
|
|
Note: The company made and sold 50,000 units this year
Required: Record the answers in the designated spots below. Round to the dollar, do not record the dollar sign, and no comma is needed between thousands and hundreds.
1. Calculate the breakeven point in sales dollars, assume that interest is a fixed cost.
Answer
2. Assuming they would like to have a minimum of $250,000 in earnings before taxes.
a) What is the minimum sales amount in dollars that will need to be maintained?
Answer
b) How many units would they need to sell?
Answer
3. a. Calculate the Degree of Operating Leverage. Please record TWO decimals.
Answer
b. Calculate the Degree of Financial Leverage.
Answer
c. Calculate their Degree of Combined Leverage
Answer
4. Using the appropriate degree of leverage from above and assuming that sales increase by 25%, compute the new net income in dollars.
Answer
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Brinks Modern Internal Auditing A Common Body Of Knowledge
Authors: Robert R. Moeller
7th Edition
0470293039, 978-0470293034
