Question

​(​Break-even analysis​) You have developed the income statement in the popup​ window, LOADING... ​, for the Hugo Boss Corporation. It represents the most recent​ year's operations, which ended yesterday. Your supervisor in the​ controller's office has just handed you a memorandum asking for written responses to the following​ questions: a. What is the​ firm's break-even point in sales​ dollars? b. If sales should increase by 30 ​percent, by what percent would earnings before taxes​ (and net​ income) increase?

Sales   51,853,438
Variable costs   (28,096,000)
Revenue before fixed costs   23,757,438
Fixed costs   (14,626,000)
EBIT   9,131,438
Interest expense   (1,354,892)
Earnings before taxes   7,776,546
Taxes at 40%   (3,110,618)
Net income    4,665,928

Answer 1

- Contribution margin = (Sales- Variable Costs)/Sales

= (51,853,438-28,096,000)/51,853,438

= 45.8165%

- Firm's break-even point in sales​ dollars = Fixed Cost/Contribution margin

= 14,626,000/45.8165%

= $ 31,922,997.17

b). Calculating the increase in earnings before taxes​ (and net​ income) if sales is Increase by 30%.

Particular	Amount in $
Sales	67,409,469.40
Less; Variable Cost	(36,524,800.00)
Revenue before fixed costs	30,884,669.40
Fixed Costs	(14,626,000.00)
EBIT	16,258,669.40
Interest Expenses	(1,354,892.00)
Earning before tax	14,903,777.40
Taxes @40%	(5,961,510.96)
Net Income	8,942,266.44

Previous Earning before Tax = $ 7,776,546

After Increase Earning before Tax = $ 14,903,777.40

% incrrease in Earning before Tax = (14,903,777.40 - 7,776,546)/7,776,546

= 91.65%

- Previous Net Income = $ 4,665,928

After Increase Net Income = $ 8,942,266.44

% incrrease in Net Income = (8,942,266.44 - 4,665,928)/4,665,928

= 91.65%