BUS 401 Week 4 Problem 12-1 and 12-5

# BUS 401 Week 4 Problem 12-1 and 12-5

403.4k points

BUS 401 Week 4 Problem 12-1 and 12-5

Study Problems 12-1 and 12-5
12-1.(Leverage analysis) You have developed the following income statement for the Hugo Boss Corporation. It represents the most recent years operations, which ended yesterday. Sales\$50,439,375 Variable costs (25,137,000) Revenue before fixed costs \$25,302,375
Fixed costs  (10,143,000)
EBIT \$15,159,375 Interest expense (1,488,375) Earnings before taxes \$13,671,000
Taxes at 50%    (6,835,500)
Net income \$6,835,500 Your supervisor in the controllers office has just handed you a memorandum asking for written responses to the following questions: a. What is the firms break-even point in sales dollars? b. If sales should increase by 30 percent, by what percent would earnings before taxes (and net income) increase? 12-5.(Operating leverage) Rocky Mount Metals Company manufactures an assortment of wood-burning stoves. The average selling price for the various units is \$500. The associated variable cost is \$350 per unit. Fixed costs for the firm average$180,000 annually.
a.    What is the break-even point in units for the company?
b.    What is the dollar sales volume the firm must achieve to reach the break-even point?
c.    What is the degree of operating leverage for a production and sales level of 5,000 units for the firm? (Calculate to three decimal places.)
d.    What will be the projected effect on earnings before interest and taxes if the firms sales level should increase by 20 percent from the volume noted in part c?

BUS 401
baptiste

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Excerpt from file: CHAPTER12PROBLEMS DETERMININGTHEFINANCINGMIX PROBLEM121 LEVERAGEANALYSIS DATA Sales VariableCosts Revenuebeforefixedcosts FixedCosts EBIT Interestexpense EBT Taxes NetIncome 50,439,375 25,137,000 25,302,375 10,143,000 15,159,375 1,488,375 13,671,000 6,835,500 6,835,500 Operatingleverage

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