Output level 120,000 units Operating assets $6,000,000 Operating asset turnover

Question

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 umits of output for the company. You are required to have the information needed to prepare an analytical income statement for the company. You will aslo need to prepare answers to the following questions.
A) What is the firm's break-even point in sales dollars?
B) If sales should increase by 40%, by what percentage would earnings before taxes and net income increase?
C) Prepare another income statement, this time to verify the calculations from part b.

Explanation / Answer

12

48%

58%

10

Income statement:

Break Even sales in Units = Fixed cost / Contribution per unit = 51169653 / 473.793 Break Even sales in Units = 108000 Units Break even sales in $ = 108000 * 600 = $64,800,000 Solving: Net sales (108000*600) $64,800,000 Variable cost (108000*126.207) $13,630,347 Contribution $51,169,653 Fixed cost $51,169,653 Net operating income $0

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