Reference no: EM131317895
Please include formulas and show for an EBIT of $53,000, not $40,000.
Martin Inc. is considering the addition of a new line of organic fertilizer. It is expected that each application of fertilizer will sell for $15.50 and the variable operating cost per application will be $8.00. Total fixed operating costs are expected to be $40,000. The company has a 30% marginal tax rate, and will have interest expense associated with this line of $12,000. Martin expects to sell 10,000 applications in the first year.
a) Put together the complete income statement for the organic fertilizer line's first year. Is the line expected to be profitable?
b) Calculate the operating break even point in both units and dollars.
c) How many applications would Martin need to sell to reach a target EBIT of $53,000?
d) What is the DOL, DFL, and DCL for this year?
e) If sales are expected to increase by 10% next year, show the pro forma income statement.
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