During its first year of operations, the SubRay Corporation produced the following income statement results:
Net sales ......... $300,000
Cost of goods sold ..... -180,000
Gross profit ......... 120,000
General and administrative .. -60,000
Marketing expenses ..... -60,000
Depreciation ........ -20,000
EBIT ........... -20,000
Interest expenses ...... -10,000
Earnings before taxes ..... -30,000
Income taxes ............ -0
Net earnings (loss) ..... -$ 30,000
Costs of goods sold are expected to vary with sales and be a constant percentage of sales. The general and administrative employees have been hired and are expected to remain a fixed cost. Marketing expenses are also expected to remain fixed because the current sales staff members are expected to remain on fixed salaries and no new hires are planned. The effective tax rate is expected to be 30 percent for a profitable firm.
A. Estimate the survival or EBDAT breakeven amount in terms of survival revenues necessary for the SubRay Corporation to break even next year.
B. Assume that the product selling price is $50 per unit. Calculate the EBDAT breakeven point in terms of the number of units that will have to be sold next year.