Question

Electra (Pty) Ltd is a manufacturer of two-plate gas cookers...

Electra (Pty) Ltd is a manufacturer of two-plate gas cookers suitable for household and

outdoors purposes. The company sold 100 000 units in 2018 at R80.00 each. The variable

operating cost is R55.50 per unit and the fixed operating cost is R400 000. Annual interest

charges are R50 000 and the company has 12 000 preference shares bearing a fixed

dividend of R5.00 per share. The company issued 250 000 ordinary shares. The relevant tax

rate is 30%.

Required

Show all calculations.

4.1. Calculate the operating break-even point in units for the company. (5)

4.2. Calculate the company's earnings per share in tabular format at both the 2018 level

of sales and an estimated sales level of 150 000 units for 2019. (32)

4.3. Using the current 2018 level of sales as the base, calculate Electra's degree of

operating leverage. (4)

4.4. Using the current 2018 level of sales as the base, calculate Electra's degree of

financial leverage. (4)

4.5. Calculate the degree of total leverage at the 2018 sales level.

Answer & Explanation

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