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The following is information for three local auto dealers:   Bell’s Domestics Junior’s Used Europe’s Best Industry Average Average Selling Price $40,000 $30,875 $59,460 $37,500 Unit Sales 1,512 1,832 872 1,265 Interest Expense 816,750 1,089,000 3,267,000 1,633,500 Variable Costs (% of Sales) 60% 45% 40% 48% Fixed Costs 9,900,000 6,930,000 19,800,000 10,890,000 Preferred Dividends 815,000 0 452,000 315,000 Common Shares 4,500,000 7,200,000 2,700,000 6,300,000 Using the information given in the above table, construct income statements for each company and the industry average. Assume that each company faces a tax rate of 25%. Calculate the break-even points and the degrees of operating, financial, and combined leverage for each company and the industry average. Compare the companies to each other and the industry average. What conclusions can you draw about each operation?

The following is information for three local auto dealers:   Bell’s Domestics Junior’s Used Europe’s Best Industry Average Average Selling Price $40,000 $30,875 $59,460 $37,500 Unit Sales 1,512 1,832 872 1,265 Interest Expense 816,750 1,089,000 3,267,000 1,633,500 Variable Costs (% of Sales) 60% 45% 40% 48% Fixed Costs 9,900,000 6,930,000 19,800,000 10,890,000 Preferred Dividends 815,000 0 452,000 315,000 Common Shares 4,500,000 7,200,000 2,700,000 6,300,000 Using the information given in the above table, construct income statements for each company and the industry average. Assume that each company faces a tax rate of 25%. Calculate the break-even points and the degrees of operating, financial, and combined leverage for each company and the industry average. Compare the companies to each other and the industry average. What conclusions can you draw about each operation?

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter2: Basic Managerial Accounting Concepts
Section: Chapter Questions
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  1. The following is information for three local auto dealers:

      Bell’s Domestics Junior’s Used Europe’s Best Industry Average
    Average Selling Price $40,000 $30,875 $59,460 $37,500
    Unit Sales 1,512 1,832 872 1,265
    Interest Expense 816,750 1,089,000 3,267,000 1,633,500
    Variable Costs (% of Sales) 60% 45% 40% 48%
    Fixed Costs 9,900,000 6,930,000 19,800,000 10,890,000
    Preferred Dividends 815,000 0 452,000 315,000
    Common Shares 4,500,000 7,200,000 2,700,000 6,300,000

    1. Using the information given in the above table, construct income statements for each company and the industry average. Assume that each company faces a tax rate of 25%.

    2. Calculate the break-even points and the degrees of operating, financial, and combined leverage for each company and the industry average.

    3. Compare the companies to each other and the industry average. What conclusions can you draw about each operation?   

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