| Question: |
| Genatron wants to estimate what will happen to its income before interest and taxes if its net sales change from the 2012 level of $1,500,000. Refer to Genatron’s 2012 income statement below, where the income before interest and taxes is $247,000 (EBT of $190,000 plus Interest of $57,000). Assume that the cost of goods sold are variable expenses and that the other operating expenses are fixed. |
| a. | Calculate the expected amount of income before interest and taxes for both a 10 percent decrease and a 10 percent increase in net sales for next year. |
| | Percent Change |
| | Current | 2012 | – 10% | 10% |
| | Net sales | 1,500,000 |
| | Cost of goods sold (variable expenses) |
| | | (900,000) |
| | Gross profit |
| | General & administrative | (150,000) |
| | Marketing | (15,000) |
| | Depreciation | (3,000) |
| | Income before interest & taxes | 247,000 |
| b. | Determine the percentage change in income before interest and taxes given your calculations in Part a, and determine the degree of operating leverage. |
| | Percent change in operating income |
| | Degree of operating leverage |
Mermaid
fin_2640_week3_lab12.xls
