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Haunted Forest, Inc.is selling fog machines. Use the following information about Haunted Forest, Inc. to answer...

Haunted Forest, Inc.is selling fog machines. Use the following information about Haunted Forest, Inc. to answer the following questions. Average selling price per unit $328. Variable cost per unit $206 Units sold 358 Fixed costs $15,489 Interest expense $3,481 Based on the data above, what will be the resulting percentage change in earnings per share if they expect units produced and sold to change 9.6 percent? (You should calculate the degree of total (combined) leverage first).

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Expert Solution

Change in Units by 9.6% Percentage change
Average Selling Price per unit $                    328
Variable cost per unit $                    206
Units sold 358 392
Fixed costs $              15,489
Interest expense $                 3,481
Sale Price '=328*358Units                117,424               128,576 9.5%
Less:-Variable cost '=206*358 Units                (73,748)               (80,752)
Fixed costs                (15,489)               (15,489)
EBIT                   28,187                  32,335 14.7%
Interest expenses                   (3,481)                  (3,481)
EBT                   24,706                  28,854 16.8%
DCL = Contribution/EBT
Contribution= Sales-variable cost                   43,676                  47,824
Contribution/EBT =43676/24706 =47824/28854
                  1.7678                  1.6574
DCL= Percentage change in EPS/Percentage change in sales
Percentage change in EPS= DCL* Precentage change in Sales
=1.6574*9%
15.7%

jeff jeffy answered 1 year ago
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