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
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.
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.