Question

In: Finance

During the most recent fiscal year, Medical Electronics Corporation sold 2,560,000 health monitoring devises at $60...

During the most recent fiscal year, Medical Electronics Corporation sold 2,560,000 health monitoring devises at $60 per unit. Variable operating costs were 60% of sales ($36 per unit), while fixed operating costs were $12,288,000. The cost of outstanding debt (interest expense) was $4,152,000. Medical Electronics Corporation’s tax rate is 30%. The company does not sell any other product. (PLEASE SHOW YOUR WORK).

a) Construct Medical Electronics Corporation’s income statement for the most recent fiscal year (complete the following table).

Sales

     Less: Variable operating costs

               Fixed operating costs

Earnings before interest and taxes (EBIT)

     Less: Interest expense

Earnings before taxes (EBT)

     Less taxes (30%)

Earnings after taxes (EAT)

b) Compute the degree of financial leverage (DFL)

c) Interpret the calculated DFL.

d) Compute the Operating Break-even point in dollars.

e) Compute the Operating Break-even point in units.

Solutions

Expert Solution

a $
Sales          153,600,000
     Less: Variable operating costs            92,160,000
Contribution            61,440,000
     Fixed operating costs            12,288,000
Earnings before interest and taxes (EBIT)            49,152,000
     Less: Interest expense               4,152,000
Earnings before taxes (EBT)            45,000,000
     Less taxes (30%)            13,500,000
Earnings after taxes (EAT)            31,500,000
b Degree of financial leverage (DFL)
EBIT / EBT
49152000 / 45000000                         1.09
c DFL is More than 1 so it is interpreted as A high degree of financial leverage indicates that even a small change in the company’s leverage may result in a significant fluctuation in the company’s profitability
d Contribution Margin
Contribution / Sales *100 40%
     Fixed operating costs 12288000
Contribution Margin(Fixed Cost / Contribution Margin)            30,720,000
e Break-even point in units
     Fixed operating costs            12,288,000
Contribution Per Unit(60 -36) 24
Break-even point in units                  512,000

jeff jeffy answered 1 month ago
Next > < Previous

Related Solutions

During the most recent fiscal year, Medical Electronics Corporation sold 2,560,000 health monitoring devises at $60...
During the most recent fiscal year, Medical Electronics Corporation sold 2,560,000 health monitoring devises at $60 per unit. Variable operating costs were 60% of sales ($36 per unit), while fixed operating costs were $12,288,000. The cost of outstanding debt (interest expense) was $4,152,000. Medical Electronics Corporation’s tax rate is 30%. The company does not sell any other product. (PLEASE SHOW YOUR WORK). a) Construct Medical Electronics Corporation’s income statement for the most recent fiscal year (complete the following table). Sales...
4/ During its most recent fiscal year, Raphael Enterprises sold 240,000 electric screwdrivers at a price...
4/ During its most recent fiscal year, Raphael Enterprises sold 240,000 electric screwdrivers at a price of $16.20 each. Fixed costs amounted to $576,000 and pretax income was $816,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question? Multiple Choice $1,920,000. $3,072,000. $1,392,000. $3,888,000. $2,496,000. 5/ During a recent fiscal year, Creek Company reported pretax income of $120,000, a contribution margin ratio of 20% and total contribution margin...
You are given data further below for the most recent fiscal year, 2007, for Henley Corporation...
You are given data further below for the most recent fiscal year, 2007, for Henley Corporation and projections for 2008. Using this data, answer the following questions: Using the percent of sales method, forecast the first pass of the pro-forma statements and the firm’s external financing needs for 2008 (ignore, how financing is raised, i.e., focus on the first pass) assuming payout ratio is 50%. A firm's additional funds needed (AFN) must come from external sources. What are the typical...
Single Audit. Chittenden County had the following federal award activity during the most recent fiscal year:...
Single Audit. Chittenden County had the following federal award activity during the most recent fiscal year: Program# Award Received Award Expended 1 6,500,000 250,000 2 800,000 800,000 3 12,000,000 11,600,000 4 4,200,000 3,450,000 5 1,000,000 875,000 6 1,750,000 1,500,000 7 500,000 425,000 8 7,500,000 7,000,000 9 300,000 200,000 10 750,000 575,000 Required A. Based on size, which programs would be considered Type A programs? Type B programs? B. You gather the following Page 485 information: 1. Programs 3 and 4...
71) Prior to closing the accounts at the end of the most recent fiscal year, the...
71) Prior to closing the accounts at the end of the most recent fiscal year, the Town of Sonora reports the following amounts (in thousands): Assets Liabilities Revenues Expenditures or Expenses General fund $ 200 $ 100 $ 700 $ 540 Special revenue fund 100 70 70 60 Capital projects fund 800 500 0 2,000 Internal service fund 50 40 130 400 Enterprise fund - Solar 150 100 400 300 Enterprise fund - Hydro 1,700 1,000 4,000 3,500 Required: Applying...
The following assets were sold by DNC Company during the 2021 fiscal year. The company's year...
The following assets were sold by DNC Company during the 2021 fiscal year. The company's year end is December 31. Asset Vehicle Computer Furniture Original cost $ 60,000 $ 8,000 $ 18,000 Accumulated depreciation (January 1, 2021) $ 35,000 $ 7,000 $ 7,000 Depreciation method Diminishing-balance Straight-line Straight-line Depreciation rate / years remaining 25% 2 years 8 years Estimated residual value not applicable not applicable not applicable Selling price $ 22,500 $ 708 $ 14,000 Date of sale in 2021...
The Income Statement of XYZ Company for the most recent fiscal year is given below. Its...
The Income Statement of XYZ Company for the most recent fiscal year is given below. Its sales are projected to increase by 20% in the coming year and it always retains 60% of its net income. Use the percentage of sales method to find out the addition to retained earnings amount.   Sales                                                              $40,000 Operating costs                                                   30,000           Earnings before interests and taxes $10,000 Interest expenses                                               1,000    Earnings before taxes                                         $ 9,000   Taxes (40%)                                                      3,600    Net income   ...
Johnson Company had the following account balances at the end of the most recent fiscal year:...
Johnson Company had the following account balances at the end of the most recent fiscal year: Cash: $4,300, Accounts Receivable: $1,200, Supplies: $200, Accounts Payable: $700, S. Johnson, Capital: $2,900, S. Johnson, Drawing: $300, Fees Income: $4,900, Rent Expense: $1,300, Advertising Expense: $1,000, Supplies Expense: $200. Assuming that these were the only accounts used by Johnson Company during the year, for which of the following steps in the closing process would a compound entry be necessary? Step 1: Transfer Revenue...
For the most recent year, Camargo, Inc., had sales of $570,000, cost of goods sold of...
For the most recent year, Camargo, Inc., had sales of $570,000, cost of goods sold of $249,870, depreciation expense of $64,900, and additions to retained earnings of $77,300. The firm currently has 24,500 shares of common stock outstanding and the previous year’s dividends per share were $1.52. Assuming a 24 percent income tax rate, what was the times interest earned ratio?
A company reported the following numbers for the most recent fiscal year: Revenues $3,000 EBITDA $650...
A company reported the following numbers for the most recent fiscal year: Revenues $3,000 EBITDA $650 DA (Depreciation) $150 EBIT $500 - Interest Expenses $50 Taxable Income $450 Taxes $135 Net Income $315 Payout $157.5 During the year, the company reported capital expenditures of $250 and an increase in net working capital of $40. The tax rate is 30%. Assume that we know the following: • The company’s FCF will grow at 8% per year for the next five years....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT