Question

Required information Problem 9-5A Computing and analyzing times interest earned LO A1 [The following information applies to the questions displayed below.] Shown here are condensed income statements for two different companies (assume no income taxes). Miller Company Sales $ 1,000,000 Variable expenses (80%) 800,000 Income before interest 200,000 Interest expense (fixed) 60,000 Net income $ 140,000 Weaver Company Sales $ 1,000,000 Variable expenses (60%) 600,000 Income before interest 400,000 Interest expense (fixed) 260,000 Net income $ 140,000 Problem 9-5A Part 5 5. What happens to each company’s net income if sales decrease by 40%? (Round your answers to nearest whole percent.) Please put it into a percentage and explain how to find the answer.

Answer 1

	Miller Company				Weaver Company
Particular	Existing		Revised		Existing		Revised
	$	%	$	%	$	%	$	%
Sales	$1,000,000	100%	$600,000	100%	$1,000,000	100%	$600,000	100
			(1000000*60%)				(1000000*60%)
Less: Variable Expense	-$800,000	80%	-$480,000	80%	-$600,000	60%	-$360,000	60%
			(600000*80%)				(600000*60%)
Income Before Interet	$200,000		$120,000		$400,000		$240,000
Less: Interest Expense	-$60,000		-$260,000		-$260,000		-$260,000
Net Income	$140,000		-$140,000		$140,000		-$20,000