Instructions
Homework Week 3
Breakeven
There are four problems in this assignment.
Work each problem using the provided template.
Problem 1
Meyerson's Bakery
Projected Income Statement for Pie Line
Sales $25,000
Variable Costs 7,500
Fixed Costs 20,000
Earnings Before Interest and Taxes (2,500)
Interest Expense 3,000
Earnings Before Taxes (5,500)
Taxes (1,925)
Net Income (3,575)
Additional Data
Estimated Pie Sales in Units 2,500
Price per Pie $ XXXXXXXXXX
Variable Cost per Pie $ 3.00
Tax Rate 35%
Calculate the following
Operating Break-even Points
Units a
Dollars
Target Level of EBIT $15,000.00
Unit Sales Needed to Reach Target EBIT c
Price per Pie to Break Even on Net Income d Calculate this using goal seek profit = price x qty - cost* qty-fc
Assume you have 2500 units sold
Problem 2
Cymer, Inc.
Annual Income Statements
For the Fiscal Years 2005 to 2007
Dec-07 Dec-06 Dec-05
Total Revenue 521,696 543,855 383,648
Cost of Revenue 260,280 281,243 227,290
Gross Profit 261,416 262,612 156,358
Research Development 81,842 73,974 64,025
Selling General and Administrative 65,112 69,507 51,657
Net Operating Income 114,462 119,131 40,676
Other Income/Expenses Net 22,099 25,526 12,048
Earnings Before Interest And Taxes 136,561 144,657 52,724
Interest Expense 6,709 5,965 6,936
Income Before Tax 129,852 138,692 45,788
Income Tax Expense 44,413 46,137 262
Minority Interest 2,923 3,093 1,026
Net Income 88,362 95,648 46,552
Assumed S,G&A Expense Breakdown
Variable 70%
Fixed 30%
Calculate and graph the DOL, DFL and DCL for 2006 and 2007.
Leverage Measures
Degree of Operating Leverage
Degree of Financial Leverage
Degree of Combined Leverage
Problem 3
Best Products Vintage Domestic EU new Industry Average
Average Selling Price $35,000 $27,000 $52,000 $30,000
Unit Sales 1,500 1,850 850 1,250
Interest Expense 750,000 1,000,000 3,000,000 1,500,000
Variable Costs (% of Sales) 60% 45% 40% 48%
Fixed Costs 10,000,000 7,000,000 20,000,000 11,000,000
Prefe
ed Dividends 1,000,000 - 0 600,000 300,000
Common Shares 5,000,000 8,000,000 3,000,000 7,000,000
Tax Rate 35% 35% 35% 35%
Calculate the proforma income statement based on the assumptions above. Then calculate the
eakeven in units and dollars, and the DOL, DFL and DCL for each company and the industry
Best Products Vintage Domestic EU new Industry Average
Sales
Variable Costs
Fixed Costs
Earnings Before Interest and Taxes
Interest Expense
Earnings Before Taxes
Taxes
Net Income
Prefe
ed Dividends
Net Income Available to Common
Earnings per Common Share
Break-even Point (Units)
Break-even Point (Dollars)
Degree of Operating Leverage
Degree of Financial Leverage
Degree of Combined Leverage
Problem 4
Break-even Analysis Case
a) 1 2 3 4 Total
Expected Sales (units) 2,243 2,804 3,505 4,381 12,932 25% growth rate in sales
Unite Sales Price $110 $110 $110 $110
Total Sales Revenue
c) Variable Costs
Labo
OH
Matl
VCA
Total VC
Factory
SG%A
Total FC
Earnings Before Interest and Taxes
Interest Expense
Earnings Before Taxes
Taxes
Net Income
b) VC/unit
d) Unit CM
CM ratio
Breakeven in units
Breakeven in dollars
e) FC 367800 367800 367800 367800
Target NI 700000 700000 700000 700000
No change in unit CM or CM ratio
Breakeven in units
Breakeven in dollars
UMUC, KK, 2009 &P
In Year 1, Jay Company expects to sell 2,243 units at $110 per unit. Sales are expected to increase 25% each year for years 2-4. The unit sales price will remain the same. Labor is 23% of sales, Overhead 10%, Materials 5%, and Variable Sales and Admin, 4%. Fixed Costs, are Factory Overhead (2%) and Sales and Admin (4%). Annual interest expense is $425. The company tax rate is 20%.
a) Create the Sales Budget for the 4-year period.
) Calculate the variable cost per unit based on the cost given.
c) Create a budgeted income statement for the 4-year period, using all the information provided and calculated.
d) Calculate the CM ratio, Unit CM, Breakeven in units, Breakeven in dollars for the total 4-year period.
e) If sales remain at the budgeted 4-year level, but fixed costs increase to $367,800, and the company wants to achieve target net income of $ $700,000, recalculate the CM ratio, Unit CM, Breakeven in units, Breakeven in dollars, and Target Breakeven in Units.
f) Create a
eakeven chart for Jay Company based on unit increments of 250 and the revised fixed costs of $367,800. (Hint: You want to graph sales, fixed costs and total costs (total variable and fixed) on one scatter plot.)