1. Calculate BWP's DFL and DTL before and after the acquisition of the new machine.
2. Use the information from the previous two problems. Calculate BWP's breakeven point in units and dollars, with and without the purchase of the new machine.
3. The Spitfire Model Airplane Company has the following modified income state- ment ($000) at 100,000 units of production.
|
Revenue
|
$10,000
|
|
Variable cost
|
6,500
|
|
Fixed cost
|
2,200
|
|
EBIT
|
$1,300
|
|
Interest (@ 10%)
|
500
|
|
EBT
|
$800
|
|
Tax (@ 40%)
|
320
|
|
EAT
|
$480
|
|
Number of shares
|
20,000
|
a. What are Spitfire's contribution margin and dollar breakeven point?
b. Calculate Spitfire's current DFL, DOL, and DTL.
c. Calculate the current EPS and estimate what it would become if sales declined by 25%. Use the DTL first and then recalculate the modified income state- ment. (Assume a negative EBT generates a negative tax.)