A company generates $5,000,000 in sales by selling 1.250,000 units at $4 per unit. Its variable costs equal 75 percent of sales and its fixed costs are $750,000. Therefore, the company's operating income (EBIT) equals $500,000. The company estimates that if its EBIT were to increase 10 percent, its net income and EPS would increase 25.0 percent. How much will net income and EPS increase if sales increase by 10 percent? (Assume that the change in sales will have no effect on the company's tax rate.)

A company generates $5,000,000 in sales by selling 1.250,000 units at $4 per unit. Its variable costs equal 75 percent of sales and its fixed costs are $750,000. Therefore, the company's operating income (EBIT) equals $500,000. The company estimates that if its EBIT were to increase 10 percent, its net income and EPS would increase 25.0 percent. How much will net income and EPS increase if sales increase by 10 percent? (Assume that the change in sales will have no effect on the company's tax rate.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 9E: Gelbart Company manufactures gas grills. Fixed costs amount to 16,335,000 per year. Variable costs...

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