EBK FOUNDATIONS OF FINANCE
10th Edition
ISBN: 9780134897288
Author: PETTY
Publisher: VST
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Chapter 12, Problem 5SP
a)
Summary Introduction
To determine: The break-even point in units
b)
Summary Introduction
To determine: The break-even point in sales dollar.
c)
Summary Introduction
To determine: The degree of operating leverage.
d)
Summary Introduction
To determine: The projected impact on EBIT.
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Charlevoix Cases makes mobile phone cases. The company has collected the following price and cost characteristics:
Sales price
Variable costs
Fixed costs
$ 12.00 per case
5.50 per case
391,950 per year
Assume that the company plans to sell 75,300 units annually. Consider requirements (b), (c), and (d) independently of each other.
Required:
a. What will be the operating profit?
b. What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 10 percent?
Note: Do not round intermediate calculations.
c. What is the impact on operating profit if variable costs per unit decrease by 20 percent? Increase by 10 percent?
Note: Do not round intermediate calculations.
d. Suppose that fixed costs for the year are 20 percent lower than projected and variable costs per unit are 20 percent higher tha
projected. What impact will these cost changes have on operating profit for the year? Will profit…
Assume a company is considering adding a new product. The expected cost and revenue data for this product are as follows:
Annual sales
5,000
units
Unit selling price
$
60
Unit variable costs:
Production
$
33
Selling
$
6
Incremental fixed costs per year:
Production
$
34,500
Selling
$
45,000
If the company adds the new product, it expects the contribution margin of other product lines to drop by $15,300 per year. What is the financial advantage (disadvantage) of adding the new product?
Multiple Choice
$40,800
$10,200
$89,700
$25,500
How I can resolve this problem.
The management of a firm wants to introduce a new product. the product will sell for $4 a unit and can be produced by either of two scales of operation. in the first, total cost are.
TC= $3,000 +$2.8Q
In the second scale of operation, total cost are
TC=$5,000+$2.04Q
a. what is the break-even level of outpur for each scale of operation?
b. what will be the firm;s profit for each scale of operation if sales reach 5,000 units?
c. one-half of the fixed cost are noncash(depreciation) . all other expenses are for cash. if sale are 2,000 units, will cash receipts cover cash expenses for each scale of operation?
d. the anticipaded levels of sales are the following:
Year Unit Sales
1 4,000
2 5000
3 6,000
4 7,000
If management selects the scale of production which higher fixed cost, what can it expect…
Chapter 12 Solutions
EBK FOUNDATIONS OF FINANCE
Ch. 12 - Prob. 1RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 1SPCh. 12 - Prob. 2SPCh. 12 - Prob. 3SPCh. 12 - Prob. 4SPCh. 12 - Prob. 5SPCh. 12 - (Capital structure theory) Match each of the...
Ch. 12 - (Capital structure theory) Which of the following...Ch. 12 - Prob. 8SPCh. 12 - Prob. 9SPCh. 12 - (Assessing leverage use) Financial data for three...Ch. 12 - Prob. 1.1MCCh. 12 - Prob. 1.2MCCh. 12 - Prob. 1.3MCCh. 12 - Prob. 1.4MCCh. 12 - Prob. 2.1MCCh. 12 - Prob. 2.2MCCh. 12 - Prob. 2.3MCCh. 12 - Prob. 3.1MCCh. 12 - Prob. 3.2MCCh. 12 - Prob. 3.3MC
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