PALMETTO SOUPS
Solution to Q #.1
Income Statement |
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| 1995 | 1996 | |
Sales | 25,500 | 28,050 | |
Cost of Goods sold | 20,400 | 17,672 | 60% RM and DL, PLUS selling exp @3% of sales added here. |
Gross profit | 5,100 | 10,378 | Gross Margin is 37%. |
Administrative | 1,275 | 3,000 | |
Depreciation | 850 | 3,750 | |
Other fix cost | 425 | 1,000 | |
EBIT | 2,550 | 2,628 | |
Interest | 400 | 1,800 | Interest expense increased by additional $1.4 M. |
Earnings before taxes | 2,150 | 828 | |
Taxes (40%) | 860 | 331 | |
Net income | 1,290 | 497 |
Solution to Q #.2
Breakeven Sales Volume |
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CM Ratio | Cont. Margin/Sales |
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= | 37% |
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BE in $ | Total Fix Cost/CM Ratio |
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= | 20,946.96 |
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DOL: Degree of Operating Leverage |
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= | % Change in EBIT/ % Change in Sales |
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Now to claculate these; |
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% change in EBIT = | 3% |
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% change in Sales = | 10% |
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So, the DoL is = | 31% |
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