Foundations of Financial Management
Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
Question
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Chapter 5, Problem 5P

a.

Summary Introduction

To calculate: The break-even point (BEP) of Eaton Tool Company.

Introduction:

Break-even point (BEP):

BEP is a no-profit and no loss situation. It is a point in production at which the expenditure in totality is equal to the income in totality.

b.

Summary Introduction

To calculate: The new break-even point (BEP) of Eaton Tool Company.

Introduction:

Break-even point (BEP):

BEP is a no-profit and no loss situation. It is a point in production at which the expenditure in totality is equal to the income in totality.

c.

Summary Introduction

To explain: The likely profitability in case of a high volume levels.

Introduction:

Break-even point (BEP):

BEP is a no-profit and no loss situation. It is a point in production at which the expenditure in totality is equal to the income in totality.

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c. Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)? Profitability will be less Profitability will be more
Eaton Tool Company has fixed costs of $435,600, sells its units for $94, and has variable costs of $50 per unit. a. Compute the break-even point. Break-even point b. Ms. Eaton comes up with a new plan to cut fixed costs to $340,000. However, more labor will now be required, which will increas variable costs per unit to $53. The sales price will remain at $94. What is the new break-even point? Note: Round your answer to the nearest whole number. New break-even point units Profitability will be less Profitability will be more units c. Under the new plan, what is likely to happen to profitability at very high volume levels (compared to the old plan)?
The manufacturer of a product that a variable cost of $2.50 per unit and total fixed cost of $125,000 wants to determine the level of output necessary to avoid losses. a. what level of sales is necessary to break, even if the product is sold for $4.25? what will be the manufacturer's profit or loss on the sales of 1000,00 units? b.If fixed costs rise to $175,000, what is the new level of sales necessary to break even? c.If variable cost decline to $2.25 per unit, what is the new level of sales necessary to break even? d. If fixed cost were to increase to $17,000, while variable cost declined to $2.25 per unit, what is the new break-even level of sales? e. If a major proportion of fixed costs were noncahs (depreciation), would failure to achieve the break-even level of sales imply that the firm cannot pay its current obligation as they come due? Suppose $100,000 of the above fixed cost $125,000 werre depreciation expense. what level of sales would be the cash break-even level of sales?…

Chapter 5 Solutions

Foundations of Financial Management

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