Create a budgeted income statement for the 4-year period

Question

Problem 1

Meyerson's Bakery : Projected Income Statement for Pie Line

Sales	$25,000
Variable Costs	7,500
Fixed Costs	20,000
Earnings Before Interest and Taxes	(2,500)
Interest Expense	3,000
Earnings Before Taxes	(5,500)
Taxes	(1,925)
Net Income	(3,575)
Additional Data
Estimated Pie Sales in Units	2,500
Price per Pie	$            10.00
Variable Cost per Pie	$              3.00
Tax Rate	35%

Calculate the following

Operating Break-even Points

Units

Dollars

Target Level of EBIT $15,000.00
Unit Sales Needed to Reach Target EBIT

Price per Pie to Break Even on Net Income 

Calculate this using goal seek profit = price x qty - cost* qty-fc

Assume you have 2500 units sold

Problem 2

Cymer, Inc.
Annual Income Statements
For the Fiscal Years 2005 to 2007

	Dec-07	Dec-06	Dec-05
Total Revenue	521,696	543,855	383,648
Cost of Revenue	260,280	281,243	227,290
Gross Profit	261,416	262,612	156,358
Research Development	81,842	73,974	64,025
Selling General and Administrative	65,112	69,507	51,657
Net Operating Income	114,462	119,131	40,676
Other Income/Expenses Net	22,099	25,526	12,048
Earnings Before Interest And Taxes	136,561	144,657	52,724
Interest Expense	6,709	5,965	6,936
Income Before Tax	129,852	138,692	45,788
Income Tax Expense	44,413	46,137	262
Minority Interest	2,923	3,093	1,026
Net Income	88,362	95,648	46,552
Assumed S,G&A Expense Breakdown
Variable	70%
Fixed	30%

Calculate and graph the DOL, DFL and DCL for each of the three years.

Leverage Measures

Degree of Operating Leverage

Degree of Financial Leverage

Degree of Combined Leverage

Problem 3

	Best Products	Vintage Domestic	EU new	Industry Average
Average Selling Price	$35,000	$27,000	$52,000	$30,000
Unit Sales	1,500	1,850	850	1,250
Interest Expense	750,000	1,000,000	3,000,000	1,500,000
Variable Costs (% of Sales)	60%	45%	40%	48%
Fixed Costs	10,000,000	7,000,000	20,000,000	11,000,000
Preferred Dividends	1,000,000	-	600,000	300,000
Common Shares	5,000,000	8,000,000	3,000,000	7,000,000
Tax Rate	35%	35%	35%	35%

Calculate the proforma income statement based on the assumptions above. Then calculate the breakeven in units and dollars, and the DOL,

DFL and DCL for each company and the industry .

Sales

Variable Costs

Fixed Costs

Earnings Before Interest and Taxes

Interest Expense

Earnings Before Taxes

Taxes

Net Income

Preferred Dividends

Net Income Available to Common

Earnings per Common Share

Break-even Point (Units)

Break-even Point (Dollars)

Degree of Operating Leverage

Degree of Financial Leverage

Problem 4

Break-even Analysis Case

In Year 1, Jay Company expects to sell 2,243 units at $110 per unit. Sales are expected to increase 25% each year for years 2-4. The unit sales price will remain the same. Labor is 23% of sales, Overhead 10%, Materials 5%, and Variable Sales and Admin, 4%. Fixed Costs, are Factory Overhead (2%) and Sales and Admin (4%). Interest expense of $425 is evenly budgeted over the period. The company tax rate is 20%.

a) Create the Sales Budget for the 4-year period.

b) Calculate the variable cost per unit based on the cost given.

c) Create a budgeted income statement for the 4-year period, using all the information provided and calculated.

d) Calculate the CM ratio, Unit CM, Breakeven in units, Breakeven in dollars for the total 4-year period.

e) If sales remain at the budgeted 4-year level, but fixed costs increase to $367,800, and the company wants to achieve target net income of $ $700,000, recalculate the CM ratio, Unit CM, Breakeven in units, Breakeven in dollars, and Target Breakeven in Units.

f) Create a breakeven chart for Jay Company based on unit increments of 250 and the revised fixed costs of $367,800. (Hint: You want to graph sales, fixed costs and total costs (total variable and fixed) on one scatter plot.)

Degree of Combined Leverage

	1	2	3	4	Total
Expected Sales (units)	2,243	2,804	3,505	4,381	12,932
Unite Sales Price	$110	$110	$110	$110
Total Sales Revenue