Question

Required information Problem 11-5A Computing and analyzing times interest earned LO A1 [The following information applies to the questions displayed below.] Shown here are condensed income statements for two different companies (assume no income taxes). Miller Company Sales $ 1,200,000 Variable expenses (80%) 960,000 Income before interest 240,000 Interest expense (fixed) 60,000 Net income $ 180,000 Weaver Company Sales $ 1,200,000 Variable expenses (60%) 720,000 Income before interest 480,000 Interest expense (fixed) 300,000 Net income $ 180,000 Problem 11-5A Part 2 2. What happens to each company's net income if sales increase by 30%  

What happens to each company's net income if sales increase by 40%?

4. What happens to each company's net income if sales decrease by 10%? (Round your answers to nearest whole percent.)

5. What happens to each company's net income if sales decrease by 30%? (Round your answers to nearest whole percent.)

Can you please break it down to me on how you calculate the net income sales ??? I have been working on this for three hours. I am begging you

Answer 1

Answer 1. Computation of Times Interest Equmes patro Times intevest equired is the ratio which spus how much times Hy company pays interest on noter with the respective earnings before interest and taxes. It is glebated by : Times Interest Equine! Earnings Before Interest and Taxes pytle Interest Expense Miller Company : $ t 290000 60000 = 4 times Wequer compar s f 480000 $ 300000 1.6 times Combined Leverage combined Leverage is the ratio of company's con wibytin Margin dividel by the earnings before taxes. This ratio shows of how much company's increase or lecneque in sqles / connjbution will leads to increase on decreque in the earnings before taxes. It is also calculated by multielying operating and the financial leverage. Combined levevage : - Contribution margin Equyings Before Taxes. Combined Levevege : Operating leverage X Financial leverque. In the question, contriby tjon Margin is income before inlevert and Earnings before taxes is Net Income. $249000 : 1033 F 180000 combined leverage of Miller company 480000 Combined Leverage = 2.66 0 of Wequer company $ 180030 2. If Sales increque by 30% then impact on niet to come weaver company 2.66 Parti ulars 1 Miller company combined leverage 1:33 Increase in syles / contribution 30 % Torrease in Net Income (q xu) 40% New Net Income (ol Net Income t (c)%of Old Net I Income 30% 80% 324000 252000

3. If sales increase by 40% then impact on net income will be : milles company weaver COMPIU 1.33 2.66 Partjullars I combiner Leverage 16. Facueque in sales / contribution Increase in Net Income (986) New Net Income Cold Net 19 come + () % of old Net Income 40% 40% 53.33% 276000 106.66% 372000 4. If sales decrease by 10% thin impact on net income will be weaver company millor company 1.33 100% 2.66 10% n particulars Combained Leverage . pecueque in sales / contritytion Decrease in Net Income caxo) New Net Income Cold Net Income - (C)% of old Net Income 13.33% 26.66% 156000 132000 s. If sales devreqre by 20% then impact on net income will be Wequer company 2.66 Miller company 1.33 30 % 40% 30% Particulars combined leverage Decrepse in sales / contribution Decreque in Net Income (146) 1. l New Net Income Cold Net Income -(0)%of Old Net To conge s j 80% 108000 36000