11BP_d The Harding Company manufactures... [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: 11BP_d (page 147)

The Harding Company manufactures skates. The company鈥檚 income statement for 20X1 is as follows:
HARDING COMPANY
Income Statement
For the year ended December 31, 20X1
Sales (10,500 skates at $60 each)
$630,000
Less: variable costs (10,500 tires at $25)
262,500
Less: fixed cost
200,000
Earnings before interest and taxes (EBIT)
$167,500
Interest expenses
62,500
Earning before taxes (EBT)
$105,000
Income tax expenses (30%)
31,500
Earning after taxe (EAT)
$73,500
Given this income statement, compute the following:
d. Break even point in units.

Short Answer

Expert verified

Break-even point in units is 5,714.

Step by step solution

Fixed cost

Fixed cost of the company remains fixed in amount every month irrespective of the sales or production volume. It is deducted from the gross revenue of the company while computing the income statement.

Break-even point in units

$\begin{array}{rcl} Break even point & = & \frac{Fixed cost}{(Revenue per unit - Variable cost per unit)} \\ = & \frac{$ 200, 000}{($ 60 - $ 25)} \\ = & 5, 714 units \end{array}$

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Sales	\( 2790000
Cost of goods sold	1790000
Gross Profits	\)1000000
Selling and administrative expenses	302000
Operating profits	\(698000
Interest Expense	54800
Income before taxes	\)643200
Taxes30%	192960
Income after-tax	$ 450240

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Short Answer

Step by step solution

Fixed cost

Break-even point in units

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HARDING COMPANY Income Statement For the year ended December 31, 20X1
Sales (10,500 skates at \(60 each)	\)630,000
Less: variable costs (10,500 tires at \(25)	262,500
Less: fixed cost	200,000
Earnings before interest and taxes (EBIT)	\)167,500
Interest expenses	62,500
Earning before taxes (EBT)	\(105,000
Income tax expenses (30%)	31,500
Earning after taxe (EAT)	\)73,500