CVP; operating leverage; income statementRacine Tire Co. manufactures tires for all-terrain vehicles. The tires sell for $60, and variable cost per tire is $30; monthly fixed cost is $450,000.a. What is the break-even point in units and sales dollars?Break-even point in units: Break-even in sales dollars: b. If Ronnie Rice, the company’s CEO, wants the business to earn a pre-tax profit of 25 percent of revenues, how many tires must be sold each month? c. If the company is currently selling 20,000 tires monthly, what is the degree of operating leverage? d. 1. If the company can increase sales volume by 15 percent above the current level, what will be the increase in net income? What will be the new net income?New net income $ Increase in net income $ 2. Prove your calculations with an income statement.Note: Do not use negatives signs with your answers.
CVP; operating leverage; income statement
Racine Tire Co. manufactures tires for all-terrain vehicles. The tires sell for $60, and variable cost per tire is $30; monthly fixed cost is $450,000.
a. What is the break-even point in units and sales dollars?
Break-even point in units:
Break-even in sales dollars:
b. If Ronnie Rice, the company’s CEO, wants the business to earn a pre-tax profit of 25 percent of revenues, how many tires must be sold each month?
c. If the company is currently selling 20,000 tires monthly, what is the degree of operating leverage?
d. 1. If the company can increase sales volume by 15 percent above the current level, what will be the increase in net income? What will be the new net income?
New net income $
Increase in net income $
2. Prove your calculations with an income statement.
Note: Do not use negatives signs with your answers.
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