EBIT Sensitivity Stewart Industries sells its finished product for $9.88 per unit. Its fixed operating costs...

EBIT Sensitivity Stewart Industries sells its finished product for $9.88 per unit. Its fixed operating costs are $20,500, and the variable operating cost per unit is $5.97.

a. Calculate the firm's earnings before interest and taxes (EBIT) for sales of 12,000 units.

b. Calculate the firm's EBIT for sales of 11,000 and 13,000 units, respectively.

c. Calculate the percentage changes in sales (from the 12,000-unit base level) and associated percentage changes in EBIT for the shifts in sales indicated in part (b).

d. On the basis of your findings in part (c),

comment on the sensitivity of changes in EBIT in response to changes in sales.

Solutions

Expert Solution

	Part a	part B
	Units	rate	Amount	Units	rate	Amount	Units	rate	Amount
Particulars
Sales units	12000	9.88	118560	11000	9.88	108680	13000	9.88	128440
Less:
Variable cost per unit		5.97	71640		5.97	65670		5.97	77610
Fixed costs			20500			20500			20500
EBIT			26420			22510			30330

Part C
% of change in EBIT		1.910706

Part D
EBIT is Incresing according to the increase in sales. There is a direcct relatioinship between the two.

wORKING:

jeff jeffy answered 1 year ago

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