mpany has $2.5 million of sales today, SG&A costs of $2 million excluding depreciation, annual depreciation of $0.6 million, and a COGS of agement estimates that if there is a large growth in sales, then the increase of SG&A excluding depreciation will equal to 10% of sales incre ase of depreciation will equal to 5% of sales increment. ther income during this time. men what are the cash breakeven sales? $ men what are the book breakeven sales? $ ,000 ,000
mpany has $2.5 million of sales today, SG&A costs of $2 million excluding depreciation, annual depreciation of $0.6 million, and a COGS of agement estimates that if there is a large growth in sales, then the increase of SG&A excluding depreciation will equal to 10% of sales incre ase of depreciation will equal to 5% of sales increment. ther income during this time. men what are the cash breakeven sales? $ men what are the book breakeven sales? $ ,000 ,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A company has $2.5 million of sales today, SG&A costs of $2 million excluding depreciation, annual depreciation of $0.6 million, and a COGS of 70%.
Management estimates that if there is a large growth in sales, then the increase of SG&A excluding depreciation will equal to 10% of sales increment, and the
increase of depreciation will equal to 5% of sales increment.
No other income during this time.
• Then what are the cash breakeven sales? $
• Then what are the book breakeven sales? $
,000
,000
Transcribed Image Text:Polymerco, a North American manufacturer of specialty polymers, has the following highly condense income statement, given in the table below. Their current
sales are to North American customers only. The president casually mentions that it would be nice to have more offshore sales to diversify the company.
Polymerco Income Statement
Gross sales
Bad debt
Net sales
COGS
Operating income
Other income and interest on long-term
debt
Contribution margin
CM(%)
SG&A
◆
This year ($000)
26939
nil
26939
22,243
4696
17.4%
2,122
2574
-60
%
Net income
(a) if Polymerco's production is running at 84% capacity, what is the maximum discount in percentage that you can provide? Please keep one decimal in the
blank. (Please count the two years' data as the historical performance which gives CM% in a given range, then what is the maximum discount in
percentage that you can provide?)
Maximum discount=
2514
Last year ($000)
24293
nil
24293
21,341
2952
12.2%
2,067
885
-50
835
% Please keep one decimal in the blank
In this case, will you have a negative impact on the contribution margin ($) of the business?
(b) if Polymerco's production is running at 100% capacity, how much percentage of discount can you provide without reducing the contribution margin?
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