The following is information for three local auto dealers: Bell’s DomesticsJunior’s UsedEurope’s BestIndustry AverageAverage Selling Price$40,000$30,875$59,460$37,500Unit Sales1,5121,8328721,265Interest Expense816,7501,089,0003,267,0001,633,500Variable Costs (% of Sales)60%45%40%48%Fixed Costs9,900,0006,930,00019,800,00010,890,000Preferred Dividends815,0000452,000315,000Common Shares4,500,0007,200,0002,700,0006,300,000Using the information given in the above table, construct income statements for each company and the industry average. Assume that each company faces a tax rate of 25%.Calculate the break-even points and the degrees of operating, financial, and combined leverage for each company and the industry average.Compare the companies to each other and the industry average. What conclusions can you draw about each operation?

Preparation of income statement and other requirement with all necessary calculation are as follows

Answered: The following is information for three…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following is information for three local auto dealers:

	Bell’s Domestics	Junior’s Used	Europe’s Best	Industry Average
Average Selling Price	$40,000	$30,875	$59,460	$37,500
Unit Sales	1,512	1,832	872	1,265
Interest Expense	816,750	1,089,000	3,267,000	1,633,500
Variable Costs (% of Sales)	60%	45%	40%	48%
Fixed Costs	9,900,000	6,930,000	19,800,000	10,890,000
Preferred Dividends	815,000	0	452,000	315,000
Common Shares	4,500,000	7,200,000	2,700,000	6,300,000

Using the information given in the above table, construct income statements for each company and the industry average. Assume that each company faces a tax rate of 25%.
Calculate the break-even points and the degrees of operating, financial, and combined leverage for each company and the industry average.
Compare the companies to each other and the industry average. What conclusions can you draw about each operation?

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