P18-7. Here are the income statements for Genatron Manufacturing Corporation for
ID: 2628626 • Letter: P
Question
P18-7. Here are the income statements for Genatron Manufacturing Corporation for 2013 and 2014: INCOME STATEMENT 2013 2014 DOL=%change in EBIT/% change in sales Net sales $1,300,000 x 1.153846154 $1,500,000 DFL=operating income/(operating income-interest-(preferred dividends/(1-tax rate)) Cost of goods sold 780,000 x 1.153846154 900,000 DCL=%change in NI/%change in Sales Gross profi t 520,000 x 1.153846154 600,000 General and administrative 150,000 same 150,000 Marketing expenses 130,000 x 1.153846154 150,000 Depreciation 40,000 x 1.325 53,000 Interest 45,000 x 1.425 57,000 Earnings before taxes 155,000 190,000 Income taxes 62,000 x 76,000 Net income 93,000 114,000 Assuming one-half of the general and administrative expenses are fi xed costs, estimate Genatron
Explanation / Answer
Particulars 2013 2014 Net sales 1,300,000 1,500,000 Less Cost of Goods sold 780,000 900,000 Variable General & adminstrative expenses 75,000 75,000 Total Variable expenses 855,000 975,000 Contribution Margin 445,000 525,000 Less Fixed expenses General & adminstrative expenses 75,000 75,000 Marketing expenses 130,000 150,000 Depreciation 40,000 53,000 Total fixed expenses 245,000 278,000 EBIT 200,000 247,000 Degree of Operating leverage = Contribution EBIT 445,000 525,000 200,000 247,000 2.23 2.13 Degree of Financial Leverage Particulars 2013 2014 EBIT 200,000 247,000 Less Interest 45,000 57,000 Earnings before tax ( EBT) 155,000 190,000 Degree of Financial leverage = EBIT EBT 200,000 247,000 155,000 190,000 1.29 1.30 Degree of Combined Leverage 2.87 2.76
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