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    Break-even point in sales dollars

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    You have developed the following income statement for your corporation. It represents the most recent year's operations, which ended yesterday.

    Sales $45,750,000

    Variable costs 22,800,000

    Revenue before fixed costs $22,950,000

    Fixed costs 9,200,000

    EBIT $13,750,000

    Interest expense 1,350,000

    Earnings before taxes $12,400,000

    Taxes at 50% 6,200,000

    Net income $ 6,200,000

    Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions:

    a. What is the firm's break-even point in sales dollars?

    b. If sales should increase by 25 percent, by what percent would earnings before taxes (and net income) increase?

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    Solution Preview

    a. Breakeven sales = Fixed cost/contribution margin ratio
    Contribution margin ratio = 22,950,000/45,750,000=50.16%
    Breakeven sales = ...

    Solution Summary

    The solution explains how to calculate the break-even point in sales dollars and the increase in EBIT given an increase in sales