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Running head: MODULE 4 – CASE
Module 4 – Case
Name
Institutional Affiliation
Date
MODULE 4 – CASE
Case Assignment
Part A: Quantitative Problems
1. Suppose QuickCharge Corporation manufactures phone chargers. They
sell their chargers for $20. Their fixed operating costs are $100,000 and
their variable operating costs are $10 per charger. Currently they are
selling 30,000 chargers per year.
A. What is QuickCharge’s EBIT (earnings before interest
and taxes) at current sales of 30,000?
EBIT = Sales – (Variable Costs + Fixed Costs)
Sales = (Number of chargers sold * Selling price)
Sales = (30,000 * $20)
Sales = $600,000
Variable costs = variable cost per charger * number of
chargers sold
Variable Cost = $10 * 30,000
Variable Cost = $300,000
EBIT = $600,000 – ($300,000 + $100,000)
EBIT = $600,000 - $400,000
EBIT = $200,000
B. What is QuickCharge’s breakeven point?
Fixed Cost
Break Even Point (BEP) =
Price − Variable Cost
Fixed Cost = $100,000
Price = $10
Variable Cost = $300,000
$100,000
BEP = $10−$100 ,000
BEP = $10,000
C. Calculate the EBIT if QuickCharge’s sales increase 50%
to 45,000 chargers. What is the percent of change in
EBIT under this increase in sales? Also, calculate the
EBIT if the company's sales decrease 50% to 15,000
chargers. What is the percent of change in EBIT under
this decrease in sales?
EBIT = Sales – (Variable Costs + Fixed Costs)
Sales increase to 45,000 =
EBIT = ($20 * $45,000) – ($300,000 + $100,000)
EBIT =$900,000 – $400,000
2
MODULE 4 – CASE
3
EBIT = $500,000
Change in EBIT
× 100%
Former EBIT
Change in EBIT = $500,000 – 200,000
Change in EBIT = $300,000
300.000
% change in EBIT = 200,000 *100%
% change in EBIT =
= 150%
D. What is QuickCharge’s degree of operating leverage?
Based on your computation, what does its operating
leverage say about QuickCharge’s business risk?
Degree of Operating Leverage (DOL)
% change in EBIT
=
%change in sales
150
DOL = 50
DOL = 3
Since the DOL is 3, the value shows that the business is stable and is at a lower risk, where there
happe...