EBK FINANCIAL ANALYSIS WITH MICROSOFT E
EBK FINANCIAL ANALYSIS WITH MICROSOFT E
8th Edition
ISBN: 9781337515528
Author: Mayes
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 7, Problem 1P

a.

Summary Introduction

To prepare: The income statement and determine if it is profitable.

Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.

a.

Expert Solution
Check Mark

Explanation of Solution

The income statement for the company has been prepared:

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  1

Working note: Preparation of income statement and computation of net income has been shown below:

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  2

b.

Summary Introduction

To compute: Operating breakeven point units and dollars.

Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.

b.

Expert Solution
Check Mark

Explanation of Solution

Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.

The operating break even for the company has been computed:

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  3

Working note: The computation of operating break even for the company has been computed has been shown below:

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  4

c.

Summary Introduction

To compute: Operating breakeven point units with target profit.

Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.

c.

Expert Solution
Check Mark

Explanation of Solution

Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.

The operating break even with target profit for the company has been computed:

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  5

Working note: The computation of operating break even with target profit for the company has been computed has been shown below:

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  6

d.

Summary Introduction

To compute: Selling price that would lead to operating breakeven point using goal seek.

Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.

d.

Expert Solution
Check Mark

Explanation of Solution

Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.

Step 1: Enter all the details using the formulas

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  7

Working notes: Its computation using formulas has been shown below:

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  8

Step 2: Go to ‘data’ tab and click on ‘what-if analysis’ to select ‘goal seek’ function. Set the value of profit as 0 by changing the selling price. It has been shown below:

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  9

Step 3: Click on ‘OK’. The new selling price that would lead to operating profit would be computed.

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  10

e.

Summary Introduction

To compute: DOL, DFL and DCL.

Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.

e.

Expert Solution
Check Mark

Explanation of Solution

Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.

Leverage is the degree of change in component on the other component. It can be divided into three categories i.e. degree of operating leverage (DOL), degree of financial leverage (DFL) and degree of combined leverage (DCL).

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  11

Working notes: Calculation for each leverage has been shown below:

  EBK FINANCIAL ANALYSIS WITH MICROSOFT E, Chapter 7, Problem 1P , additional homework tip  12

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EBK FINANCIAL ANALYSIS WITH MICROSOFT E

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