You have developed the following income statement for your corporation. It represents the most recent year's operations, which ended yesterday.
Variable costs 22,800,000
Revenue before fixed costs $22,950,000
Fixed costs 9,200,000
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?
a. Breakeven sales = Fixed cost/contribution margin ratio
Contribution margin ratio = 22,950,000/45,750,000=50.16%
Breakeven sales = ...
The solution explains how to calculate the break-even point in sales dollars and the increase in EBIT given an increase in sales