Problem 1
Meyerson's Bakery : Projected Income Statement for Pie Line
| Sales |
$25,000 |
| Variable Costs |
7,500 |
| Fixed Costs |
20,000 |
| Earnings Before Interest and Taxes |
(2,500) |
| Interest Expense |
3,000 |
| Earnings Before Taxes |
(5,500) |
| Taxes |
(1,925) |
| Net Income |
(3,575) |
|
|
| Additional Data |
|
| Estimated Pie Sales in Units |
2,500 |
| Price per Pie |
$ 10.00 |
| Variable Cost per Pie |
$ 3.00 |
| Tax Rate |
35% |
Calculate the following
Operating Break-even Points
Units
Dollars
Target Level of EBIT $15,000.00
Unit Sales Needed to Reach Target EBIT
Price per Pie to Break Even on Net Income
Calculate this using goal seek profit = price x qty - cost* qty-fc
Assume you have 2500 units sold
Problem 2
Cymer, Inc.
Annual Income Statements
For the Fiscal Years 2005 to 2007
| |
Dec-07 |
Dec-06 |
Dec-05 |
| Total Revenue |
521,696 |
543,855 |
383,648 |
| Cost of Revenue |
260,280 |
281,243 |
227,290 |
| Gross Profit |
261,416 |
262,612 |
156,358 |
| Research Development |
81,842 |
73,974 |
64,025 |
| Selling General and Administrative |
65,112 |
69,507 |
51,657 |
| Net Operating Income |
114,462 |
119,131 |
40,676 |
| Other Income/Expenses Net |
22,099 |
25,526 |
12,048 |
| Earnings Before Interest And Taxes |
136,561 |
144,657 |
52,724 |
| Interest Expense |
6,709 |
5,965 |
6,936 |
| Income Before Tax |
129,852 |
138,692 |
45,788 |
| Income Tax Expense |
44,413 |
46,137 |
262 |
| Minority Interest |
2,923 |
3,093 |
1,026 |
| Net Income |
88,362 |
95,648 |
46,552 |
|
|
|
|
| Assumed S,G&A Expense Breakdown |
|
|
| Variable |
70% |
|
|
| Fixed |
30% |
|
|
|
|
|
|
Calculate and graph the DOL, DFL and DCL for each of the three years.
Leverage Measures
Degree of Operating Leverage
Degree of Financial Leverage
Degree of Combined Leverage
Problem 3
| |
Best Products |
Vintage Domestic |
EU new |
Industry Average |
| Average Selling Price |
$35,000 |
$27,000 |
$52,000 |
$30,000 |
| Unit Sales |
1,500 |
1,850 |
850 |
1,250 |
| Interest Expense |
750,000 |
1,000,000 |
3,000,000 |
1,500,000 |
| Variable Costs (% of Sales) |
60% |
45% |
40% |
48% |
| Fixed Costs |
10,000,000 |
7,000,000 |
20,000,000 |
11,000,000 |
| Preferred Dividends |
1,000,000 |
- |
600,000 |
300,000 |
| Common Shares |
5,000,000 |
8,000,000 |
3,000,000 |
7,000,000 |
| Tax Rate |
35% |
35% |
35% |
35% |
Calculate the proforma income statement based on the assumptions above. Then calculate the breakeven in units and dollars, and the DOL,
DFL and DCL for each company and the industry .
Sales
Variable Costs
Fixed Costs
Earnings Before Interest and Taxes
Interest Expense
Earnings Before Taxes
Taxes
Net Income
Preferred Dividends
Net Income Available to Common
Earnings per Common Share
Break-even Point (Units)
Break-even Point (Dollars)
Degree of Operating Leverage
Degree of Financial Leverage
Problem 4
Break-even Analysis Case
In Year 1, Jay Company expects to sell 2,243 units at $110 per unit. Sales are expected to increase 25% each year for years 2-4. The unit sales price will remain the same. Labor is 23% of sales, Overhead 10%, Materials 5%, and Variable Sales and Admin, 4%. Fixed Costs, are Factory Overhead (2%) and Sales and Admin (4%). Interest expense of $425 is evenly budgeted over the period. The company tax rate is 20%.
a) Create the Sales Budget for the 4-year period.
b) Calculate the variable cost per unit based on the cost given.
c) Create a budgeted income statement for the 4-year period, using all the information provided and calculated.
d) Calculate the CM ratio, Unit CM, Breakeven in units, Breakeven in dollars for the total 4-year period.
e) If sales remain at the budgeted 4-year level, but fixed costs increase to $367,800, and the company wants to achieve target net income of $ $700,000, recalculate the CM ratio, Unit CM, Breakeven in units, Breakeven in dollars, and Target Breakeven in Units.
f) Create a breakeven chart for Jay Company based on unit increments of 250 and the revised fixed costs of $367,800. (Hint: You want to graph sales, fixed costs and total costs (total variable and fixed) on one scatter plot.)
Degree of Combined Leverage
| |
1 |
2 |
3 |
4 |
Total |
| Expected Sales (units) |
2,243 |
2,804 |
3,505 |
4,381 |
12,932 |
| Unite Sales Price |
$110 |
$110 |
$110 |
$110 |
|
| Total Sales Revenue |
|
|
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|
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