Beruflich Dokumente
Kultur Dokumente
Problem 5-4
Objective: Break-even analysis
Student Name:
Course Name:
Student ID:
Course Number:
Draw two break-even graphs–one for a conservative firm using labor-intensive production and another for a
capital-intensive firm. Assuming these companies compete within the same industry and have identical sales,
explain the impact of changes in sales volume on both firms' profits.
Labor Capital
Intensive Intensive
Selling price $12.00 $12.00
Variable cost per unit $8.00 $5.00
Fixed costs $200,000 $300,000
Copyright © 2011 McGraw-Hill/ Irwin Spreadsheet Template by Block, Hirt and Danielsen Problem: 5-4
Solution
Problem 5-4
Instructions
Select the appropriate range required to draw the graph.
Complete the tables below for both the Labor-Intensive and capital-intensive firms.
Labor-Intensive Company
Units 0 25,000 50,000 75,000 100,000
Total Revenue $0 $300,000 $600,000 $900,000 $1,200,000
Variable costs $0 $200,000 $400,000 $600,000 $800,000
Contribution margin $0 $100,000 $200,000 $300,000 $400,000
Fixed Costs $200,000 $200,000 $200,000 $200,000 $200,000
Total Costs $200,000 $400,000 $600,000 $800,000 $1,000,000
Profit $200,000 $100,000 $0 $100,000 $200,000
Revenus and costs
Labor-Intensive Company
$1,400,000
$1,200,000
$1,000,000
Total Revenue
$800,000
Fixed costs
$600,000 Total costs
$400,000
$200,000
$0
0 25,000 50,000 75,000 100,000
Units produced and sold
Copyright © 2011 McGraw-Hill/ Irwin Spreadsheet Template by Block, Hirt and Danielsen Problem: 5-4
Capital-Intensive Company
Units 0 25,000 50,000 75,000 100,000
Total Revenue $0 $300,000 $600,000 $900,000 $1,200,000
Variable costs $0 $125,000 $250,000 $375,000 $500,000
Contribution margin $0 $175,000 $350,000 $525,000 $700,000
Fixed Costs $300,000 $300,000 $300,000 $300,000 $300,000
Total Costs $300,000 $425,000 $550,000 $675,000 $800,000
Profit $300,000 $125,000 $50,000 $225,000 $400,000
Revenus and costs
Capital-Intensive Company
$1,400,000
$1,200,000
$1,000,000
Total Revenue
$800,000
Fixed costs
$600,000 Total costs
$400,000
$200,000
$0
0 25,000 50,000 75,000 100,000
Units produced and sold
Copyright © 2011 McGraw-Hill/ Irwin Spreadsheet Template by Block, Hirt and Danielsen Problem: 5-4
Foundations of Financial Management
Block, Hirt and Danielsen
Problem 5-11
Objective: Degree of leverage
Student Name:
Course Name:
Student ID:
Course Number:
The Harding Company manufactures skates. The company’s income statement for 2010 is as follows:
HARDING COMPANY
Income Statement
For the Year Ended December 31, 2010
Copyright © 2011 McGraw-Hill/ Irwin Spreadsheet Template by Block, Hirt and Danielsen Problem: 5-11
Solution
Problem 5-11
Instructions
Using the Income Statement (above) and the information (below), compute the degree of operating leverage,
degree of financial leverage, degree of combined leverage, and the break-even point in units.
Information:
Unit sales 10,000
Selling price $50
Variable cost per unit $20
Copyright © 2011 McGraw-Hill/ Irwin Spreadsheet Template by Block, Hirt and Danielsen Problem: 5-11