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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:


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