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# \$10.00Output level 120,000 unitsOperating as

• From Business: Finance
• Closed, but you can still post tutorials
• Due on Nov. 24, 2008
• Asked on Nov 24, 2008 at 4:35:52PM

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Q:
Output level 120,000 units
Operating assets \$6,000,000
Operating asset turnover 12 times
Return on operating assets 48%
Degree of operating leverage 10 times
Interest expense \$720,000
Tax rate 42%

The CFO has instructed you to first determine the break-even point in units of output for the company. He requires that you prepare supporting documents, which demonstrate how you arrived at your conclusion and can facilitate his review of your work. Accordingly, you are required to have the information needed to prepare an analytical income statement for the company to be presented to the CFO. In a format that is acceptable for a meeting discussion with the CEO, you also need to prepare answers to the following questions:

a. What is the firm’s break-even point in sales dollars?

Break even level of revenues = total fixed costs/(1 – variable costs/revenues)
(this is what i have so far....i am really having a problem trying to figure out how to get my total fixed costs and variable costs....any help would be appreciated!!!)

.04 x 12 = .48 (48%) = operating profit margin
\$6,000,000 x .48 = 2,880,000 + 6,000,000 = 8,880,000 / 120,000 = \$74.00 per unit.
\$6,000,000 - \$720,000 = \$5,280,000 = EBIT (Revenues – expenses)

b. If sales should increase by 40 percent, by what percentage would EBT (earnings before taxes) and net income increase?
c. Prepare another income statement, this time to verify the calculations from part d.