Reference no: EM133183152
Questions -
Q1. Gerry's Golf Club Company expects next year's sales to be $800,000 if the economy is strong. $500,000 if the economy is steady, and $350,000 if the economy is weak. Experts economists believe there is a 20% probability the economy will be strong a 50% probability of a steady economy, and a 30% probability of a weak economy. What is the expected level of sales for next year?
Q2. Ashley Corp manufactures widgets. Each widget sells for $25 and has a variable cost of $14. There is $40,000 in fixed costs involved in the production process.
a. Compute the break-even point in units.
b. Find the sales (in units) needed to earn a profit of $30,000
Q3. The Justine Company manufactures coffee makers. The company's name income statement for 20XX is as follows:
JUSTINE COMPANY Income Statement Year Ended December 31, 20XX
Sales (10,000 units at $50) $500,000
Less: Variable costs (10,000 units at $20) $200,000
Contribution Margin $300,000
Less: Fixed costs $150,000
Operating profit or (EBIT) $150,000
Interest Expense $60,000
Earnings before taxes (EBT) $90,000
Income tax expense (40%) $36,000
Earnings after taxes (EAT) $54,000
Given this income statement. Calculate the following:
a. Degree of operating leverage. What does this calculation mean?
b. Degree of Financial leverage. What does this calculation mean?
c. Degree of combined leverage. What does this calculation mean?