10BP_d The Sterling Tire Company鈥檚 in... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 10BP_d (page 147)

The Sterling Tire Company鈥檚 income statement for 20X1 is as follows:
STERLINE TIRE COMPANY
Income Statement
For the year ended December 31, 20X1
Sales (20,000 tires at $60 each)
$1,200,000
Less: variable costs (20,000 tires at $30)
600,000
Less: fixed cost
400,000
Earnings before interest and taxes (EBIT)
$200,000
Interest expenses
50,000
Earning before taxes (EBT)
$150,000
Income tax expenses (30%)
45,000
Earning after taxe (EAT)
$105,000
Given this income statement, compute the following:
d. Break even point in units.

Short Answer

Expert verified

Break even point in units is 13,333.

Step by step solution

Income statement

Income statement is prepared by an organization to show the net income earned by the company. It shows the revenue, variable cost, fixed cost, finance cost, etc.

Break even point in units

$\begin{array}{rcl} Break even point & = & \frac{Fixed cost}{(Revenue per unit - Variable cost per unit)} \\ = & \frac{$ 400, 000}{($ 60 - $ 30)} \\ = & 13, 333 units \end{array}$

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	20X1	20X2
Sales	\(3,230,000	\)3,370,000
Cost of goods sold	2,130,000	2,850,000
Gross profits	\(1,100,000	\)520,000
Selling and administrative expenses	298,000	227,000
Operating profits	\(802,000	\)293,000
Interest expense	47,200	51,600
Income before taxes	\(754,800	\)241,400
Taxes (35%)	264,180	84,490
Income after tax	\(490,620	\)156,910

	20X1	20X2
Sales	\(3,230,000	\)3,370,000
Cost of goods sold	2,130,000	2,850,000
Gross profits	\(1,100,000	\)520,000
Selling and administrative expenses	298,000	227,000
Operating profits	\(802,000	\)293,000
Interest expense	47,200	51,600
Income before taxes	\(754,800	\)241,400
Taxes (35%)	264,180	84,490
Income after tax	\(490,620	\)156,910

Sales	1,360,000
Shares outstanding	104,000
Cost of goods sold	700,000
Interest expenses	34,000
Selling and administration expenses	49,000
Depreciation expenses	23,000
Preferred stock dividend	86,000
Taxes	100,000

Stud Clothier
Balance sheet 20X1
Assets		Liabilities and Equity
Cash	\)60,000	Account payable	\(220,000
Account receivable	240,000	Accrued taxes	30,000
Inventory	350,000	Bonds payable (long term)	150,000
Plant and equipment	410,000	Common stock	80,000
		Paid in capital	200,000
		Retained earnings	380,000
Total assets	\)1,060,000	Total LIbilities and Equity	$1,060,000

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Short Answer

Step by step solution

Income statement

Break even point in units

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STERLINE TIRE COMPANY Income Statement For the year ended December 31, 20X1
Sales (20,000 tires at \(60 each)	\)1,200,000
Less: variable costs (20,000 tires at \(30)	600,000
Less: fixed cost	400,000
Earnings before interest and taxes (EBIT)	\)200,000
Interest expenses	50,000
Earning before taxes (EBT)	\(150,000
Income tax expenses (30%)	45,000
Earning after taxe (EAT)	\)105,000