finance
Instructions
| Homework Week 3 |
| Breakeven |
| There are four problems in this assignment. |
| Work each problem using the provided template. |
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 | a | |||
| Dollars | b | |||
| Target Level of EBIT | $15,000.00 | |||
| Unit Sales Needed to Reach Target EBIT | c | |||
| Price per Pie to Break Even on Net Income | d | 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 | – 0 | 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 | ||||
| Best Products | Vintage Domestic | EU new | Industry Average | |
| 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 | ||||
| Degree of Combined Leverage |
Problem 4
| Break-even Analysis Case | |||||||
| a) | 1 | 2 | 3 | 4 | Total | ||
| Expected Sales (units) | 2,243 | 2,804 | 3,505 | 4,381 | 12,932 | 25% | growth rate in sales |
| Unite Sales Price | $110 | $110 | $110 | $110 | |||
| Total Sales Revenue |
UMUC, KK, 2009 &P
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.)
