Eagle Manufacturing is a price-taker and uses a target-pricing approach. Refer to the following information: Production volume = 780,000 units per year Market price = $29 per unit Desired operating income = 15% of total assets Total assets = $10,400,000 What is the desired profit for the year?

Eagle Manufacturing is a price-taker and uses a target-pricing approach. Refer to the following information: Production volume = 780,000 units per year Market price = $29 per unit Desired operating income = 15% of total assets Total assets = $10,400,000 What is the desired profit for the year?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 4QE: Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its...

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Eagle Manufacturing is a price-taker and uses a
target-pricing approach. Refer to the following
information:
Production volume = 780,000 units per year
Market price = $29 per unit
Desired operating income = 15% of total assets
Total assets = $10,400,000
What is the desired profit for the year?

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Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firms production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firms gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firms gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?
Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
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Eric Church company is a price taker