
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:Using these formulas:
1-Breakeven Point Formula:
FC
Q =
P – vc
2-Degree of Operating Leverage (DOL):
Percentage change in EBIT
Percentage change in sales
DOL
3-The formula for calculating the degree of operating
leverage at a base sales level, Q, is the following:
QX (P- vc)
QX (P– vc) – FC
Q: the sales level. P: sale price. vc: variable operating costs per unit.
DOL(Q) =
%3D
FC: fixed operating costs.
4-The Degree Of Financial Leverage (DFL):
Percentage change in EPS
Percentage change in EBIT
DFL
EBIT
DFL at base level EBIT -
EBIT - I- (PD x
5-degree of total leverage (DTL)
Percentage change in EPS
Percentage change in sales
DTL =
QX (P- vc)
PD
Q x (P – vc) – FC –-1-)
DTL at Q units =

Transcribed Image Text:1. Meyer Appliance Company makes cooling fans. The firm's income statement is as follows:
Sales (7,000 fans at $20)..
Less: Variable costs (7,000 fans at $8).
.$140,000
56,000
Fixed operating costs.
44,000
Earnings before interest and taxes (EBIT).
Interest ( I .
$ 40,000
10,000
Earnings before taxes (EBT)
$ 30,000
Taxes (T).
6,000
Earnings after taxes (EAT).
$ 24,000
$ 6,000
Preferred stock dividends (PD)
Compute:
a. The break-even point.
b. Degree of operating leverage.
c. Degree of financial leverage.
d. Degree of total leverage.
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- Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: Estimated Estimated Variable Cost Fixed Cost (per unit sold) Production costs: Direct materials $15 Direct labor 10 Factory overhead $451,600 Selling expenses: Sales salaries and commissions 93,800 Advertising 31,800 Travel 7,100 Miscellaneous selling expense 7,800 Administrative expenses: Office and officers' salaries 91,700 Supplies 11,300 Miscellaneous administrative expense 10,500 Total $705,600 $42 It is expected that 10,800 units will be sold at a price of $140 a unit. Maximum sales within…arrow_forwardNow suppose that annual unit sales, variable cost, and unit price are equal to their respective expected values—that is, there is no uncertainty. Determine the company's annual profit for this scenario. Round answer to a whole number, if needed.$arrow_forwardusing the price p=20 - .05x, use the Revenue function to find the marginal Revenue function R'(x), Find a. R'(100)= b. R'(175)= c. R'(250)= The marginal Revenue R'(x) approximates how the revenue will change on the sale of the next item. a. Given R(100) = 642 and R'(100)= 18 then R(101) ≈ b. Given R(400) = 16,250 and R'(400)= -10 then R(401) ≈ c. Given R(1000) = 3500 and R'(1000) = 3 then R(1001) ≈arrow_forward
- If an organization wants to make a profit, it must generate more sales revenue than the total costs it incurs. This relation can be expressed using which of the following profit equations? O a. Operating income = [(Sales price per unit - Variable cost per unit) x #units sold] - Fixed cost O b. Operating income = [Sales price per unit - Fixed cost per unit) x # units produced] -Variable cost Oc Operating income Sales revenue - Total variable costs - Discretionary costs O d. Operating income - Sales revenue - Committed costs - Fixed costsarrow_forwardWhat are the answers for the following? Construct a cost-volume-profit chart on your own paper. What is the break-even sales? What is the expected margin of safety in dollars and as a percentage of sales? Determine the operating leverage. Round to one decimal place.arrow_forwardWhen the sales price per unit decreases, the contribution margin per unit A. decreases B. increases OC. increases proportionately OD. remains the same 13arrow_forward
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