SEATWORK5 LEVERAGE

# SEATWORK5 LEVERAGE - each bottle for \$30 NVWs chief financial officer Jackie Cheng has estimated variable costs to be 70 of sales a If NVW’s

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SEATWORK # 5 Problems: 1. Given: Total fixed operating costs (F) = \$300,000 Number of units sold (Q) = 100,000 units Unit sales price (P) = \$20 Unit variable cost (V) = \$14 Interest expense = \$50,000 Tax rate = 30% Prepare an analytical income statement. Sales (\$20 x 100,000 units) \$2,000,000 Less: Variable costs (\$14 x 100,000 units) 1,400,000 Revenue before fixed costs 600,000 Less: Fixed costs 300,000 Earnings before interest and taxes 300,000 Less: Interest expense 50,000 Earnings before taxes 250,000 Less: Taxes (30%) 75,000 Net income \$175,000 2. Napa Valley Winery (NVW) is a boutique winery that produces a high-quality, nonalcoholic red wine from organically grown cabernet sauvignon grapes. It sells
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Unformatted text preview: each bottle for \$30. NVWs chief financial officer, Jackie Cheng, has estimated variable costs to be 70% of sales. a. If NVW’s fixed costs are \$360,000, how many bottles of its wine must NVW sell to break even? bottles x V P F Q B 000 , 40 9 000 , 360 ) 70 . 1 ( 30 000 , 360 = =-=-= b. What is the dollar sales volume the firm must achieve to reach the break-even point? 000 , 200 , 1 \$ 000 , 40 30 * = = bottles x S c. How many bottles of its wine must NVW sell to attain an EBIT of \$45,000? bottles x V P EBIT F Q T desiredEBI B 000 , 45 ) 70 . 1 ( 30 000 , 45 000 , 360 =-+ =-+ = +...
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## This note was uploaded on 06/26/2011 for the course ACCT 101 taught by Professor Gobaco during the Spring '11 term at De La Salle University.

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