For this, the CFO has asked you to prepare an analysis to support him in his next meeting with Tom Charles a week from today. To make the required calculations, you have put together the following data regarding the cost structure of the company:
Output level 120,000 units
Operating assets $6,000,000
Operating asset turnover 12 times
Return on operating assets 48%
Degree of operating leverage 10 times
Interest expense $720,000
Tax rate 42%
Determine the break-enen point in units of output for the company. Prepare supporting documents, which demonstrate how you arrived at your conclusion and can facilitate his review of your work. Accordingly, you are required to have the information needed to prepare an analytical income statement for the company to be presented to the Cfo. In a format that is acceptable for meeting discussion with the Cfo, you also need to prepare answer to the following questions:
A.) What is the firm's break-even point in sales dollars?
B.) If sales should increase by 40 perent, by what percentage would EBT (earning before taxes) and net income increase?
C.) Prepare another income statement, this time to verify the calculations from part b.
The solution explains some cost volume profit calculations