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    Break-even, fixed v variable costs, degree of leverage, EPS

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    Please use attached format to answer questions.

    1. Shock Electronics sells portable heaters for $25 per unit, and the variable cost to
    produce them is $17. Mr. Amps estimates that the fixed costs are $96,000.

    a. Compute the break-even point in units.
    b. Fill in the table below (in dollars) to illustrate that the break-even point has
    been achieved.
    Sales
    -Fixed costs
    -Total variable costs
    Net profit (loss)

    3. Therapeutic Systems sells its products for $8 per unit. It has the following costs:

    Rent $120,000
    Factory labor $1.50 per unit
    Executive salaries $112,000
    Raw material $.70 per unit

    Separate the expenses between fixed and variable costs per unit. Using this information and the sales price per unit of $6, compute the break-even point.

    8. The Harding Company manufactures skates. The company's income statement
    for 2001 is as follows:

    HARDING COMPANY
    Income Statement
    For the Year Ended December 31, 2001
    Sales (10,000 skates @ $50 each) . . . . . . . . . . . $500,000
    Less: Variable costs (10,000 skates at $20) . . . 200,000
    Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
    Earnings before interest and taxes (EBIT) . . . . . . 150,000
    Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
    Earnings before taxes (EBT) . . . . . . . . . . . . . . . . 90,000
    Income tax expense (40%) . . . . . . . . . . . . . . . . . 36,000
    Earnings after taxes (EAT) . . . . . . . . . . . . . . . . . . $ 54,000

    Given this income statement, compute the following:
    a. Degree of operating leverage.
    b. Degree of financial leverage.
    c. Degree of combined leverage.
    d. Break-even point in units (number of skates).

    10. Cain Auto Supplies and Able Auto Parts are competitors in the aftermarket for
    auto supplies. The separate capital structures for Cain and Able are presented
    below.

    Cain Able
    Debt @ 10% . . . . . . . . . . . . . $ 50,000 Debt @ 10% . . . . . . . . . . . . . . . . . . $100,000
    Common stock, $10 par . . . . . 100,000 Common stock, $10 par . . . . . . . . . 50,000
    Total . . . . . . . . . . . . . . . . . . $150,000 Total . . . . . . . . . . . . . . . . . . . . . . . $150,000
    Common shares . . . . . . . . . . 10,000 Common shares . . . . . . . . . . . . . . . 5,000

    a. Compute earnings per share if earnings before interest and taxes are
    $10,000, $15,000, and $50,000 (assume a 30 percent tax rate).

    b. Explain the relationship between earnings per share and the level of EBIT.

    c. If the cost of debt went up to 12 percent and all other factors remained
    equal, what would be the break-even level for EBIT?

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    https://brainmass.com/business/interest-rates/break-even-fixed-v-variable-costs-degree-of-leverage-eps-53089

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