Explore BrainMass
Share

# Calculating EBIT values at the given volume levels.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Stewart Industries sells its finished product for \$9 per unit. Its fixed operating costs are \$20,000, and the variable operating cost per unit is \$5.

a. Calculate the firm's earnings before interest and taxes (EBIT) for sales of 10,000 units.
b. Calculate the firm's EBIT for sales of 8,000 and 12,000 units, respectively.
c. Calculate the percentage changes in sales (from the 10,000-unit base level) and associated percentage changes in EBIT for the shifts in sales indicated in part b.
d. On the basis of your findings in part c, comment on the sensitivity of changes in EBIT in response to changes in sales

#### Solution Preview

A)Calculate the firm's earnings before interest and taxes (EBIT) for sales of 10,000 units.

Revenue Received from Sale of 10000 units=9*10000=\$90000
Operating Costs=\$20000
Variable cost for 10000 units = 5*10000=\$50000

EBIT=90000-(20000+50000) =\$20000

B) Calculate the firm's EBIT for sales of 8,000 and ...

#### Solution Summary

Solution calculates the EBIT values at the given volume levels.

\$2.19