BUS 401 Week 4 Assignment, Break Even Analysis

Apr 8th, 2015
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Output level120,000 unitsOperating assets$6,000,000Return on operating assets48%Tax rateDegree of operating leverage10 times42%Solution aFORMULA - Operating Asset Turnover = Sales/Operating AssetThen,Sales72,000,000FORMULA - Return on operating assets = Net Income / Operating AssetThen,Net Income2,880,000Lets create Income Statement in reverse formNet IncomeTaxesEarnings before taxes (EBT)*InterestEarning before interest & taxes (EBIT)2,880,0002,085,5174,965,517720,0005,685,517FORMULA - Degree of operating leverage = contribution margin / net operating IncomeThen,Contribution Margin56,855,172FORMULA - Contribution Margin Ratio = Contribution/SalesContribution Margin Ratio78.97%FORMULA - Fixed Expenses = Contribution Margin - EBITFixed Expenses51,169,655FORMULA - Breakeven point in $ = Fixed Expenses / Contribution Margin RatioBreakeven point in $64,800,000Solution b* b. If sales should increase by 40 percent, by what percentage would EBT (earnings before taxes) and net income inExpected Increase in Sales = 40%Degree of operating leverage = 10 timesExpected increase in net operating income = 40%*10 = 400%Expected increase in

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