se the following information about Rat Race Home Security, Inc. to answer the qu

Question

se the following information about Rat Race Home Security, Inc. to answer the questions: Average selling price per unit $308. Variable cost per unit $200 Units sold 351 Fixed costs $8,659 Interest expense 12,268 Based on the data above, what will be the resulting percentage change in earnings per share of Rat Race Home Security, Inc. if they expect operating profit to change -5.0 percent? (You should calculate the degree of financial leverage first). (Write the percentage sign in the "units" box). Round the answer to two decimals

Explanation / Answer

Rat Race Home Security,Inc., no of units sold =351

selling price =$ 308 per unit Sales = ($ 308*351)=$108108 -$ 70200(VC)=$ 37,908-$ 8,659(FC)=$ 29,249

operating income or EBITD= $ 29,249-12,268=$16,981

so financial leveragee=$ 16,981

so earning per unit= $ 16,981/351 (EBT/NO OF UNITS) = $48.38

Change in operating profit = -5.0% $ 29,249*5%= $ 1462.45

new operating procit =$ 29,249-$1462.45=$ 27,786.55

for 351 units the operating profit is $ 29,249 and for 27,786.55 how many units

351/29,249*27,786.45 = 333.45 units

so no of units sold less= 351-333.45= 17.55units

so the percentage change in the units = 17.55/351*100= 5%

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