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    Managerial Finance and EBIT Sales

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    P11-6 EBIT sensitivity 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.

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    Solution Summary

    This solution shows step-by-step calculations to determine the earnings before interest and taxes for the sales using variable and fixed costs, the percentage change in sales, and provides comments on the sensitivity of changes.