Homework Answers
Section a :Profit margin = earnings after tax / sales = 292500/ 7000000 = 4.179%. this is lower than industry standard of 5.75%. profitability is a weak point for this company.
Fixed charge coverage = (earnings before interest and tax + lease payments )÷ (lease payments + interest payments) = (700000+200000) ÷ (200000+250000+65000) = 1.75. This is lower than industry standard of 4.62 times. This ratio measures companies ability to pay fixed changes like debt repayments, lease charges and interest payments. Information on lease and debt payments are given below income statement. This is also a weak point for the company and reflects poorly on long term solvency.
Please combine all ratios to give your analysis for the company. Only solving these two ratios, I think the company's low profitability could be due to high debt repayments. If the debt to total capital ratio is also higher than industry, we can certainly say that one of the reasons for low profitability is the debt situation. The company should lower debt.
Section b: degree of Operating leverage = (sales - variable costs)/(sales - variable -fixed costs) = (7000k - 4200k)/(7000k - 4200k - 2100k) = 4
Degree of financial leverage = EBIT/(EBIT - interest ) = 700k/(700k - 250k )= 1.555
Degree of Combined leverage = degree of Operating leverage * degree of financial leverage = 4*1.56 = 6.22
Break even point in dollar sales = fixed costs ÷ (sales - variable costs )= 2100k/(sale price per unit - variable price per unit). I need price per unit and variable cost per unit to solve this question. Can you check if the footnote like mentioned in the question has this information? Cash break even is calculated the same way, only difference is depreciation is deducted from fixed costs and then divided by contribution margin (selling price per unit - variable price per unit).
Section c: the company has low financial leverage and low profitability and fixed charge coverage compared to industry standards. It is risky for a bank to lend loan to such a business.
Section d:
Additional funds needed = increase in assets - increase in liability - increase in retained earnings
Increase in assets = total assets * sales growth = 8.13 million * 20% = 1.626 million
Increase in liabilities (question says not to include notes payable and bonds in liability calculation ) = (payables + accrued expenses) * sales growth = 2.35 million * 20%= 0.47 million
Increase in retained earnings= ((20y2 sales )* profit margin* retention rate = ((7million * (1+20%)) * 4.172%* (1-40%) = 0.1404 million
Additional funds = 1.626-0.47-0.1404 = 1.0156 millions
Add Answer to:
See pages 154-155 requirements a-d for this week assignment
(Ryan Boot Company).
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Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results: $ Sales (30,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income 750,000 450.000 300,000 210,000 90,000 Required: 1. Compute...
Last year, the company sold 46,000 of these balls, with the following results: Sales (46,000 balls)...
Last year, the company sold 46,000 of these balls, with the following results: Sales (46,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,150,000 690,000 460,000 318,000 $ 142,000 Required: 1. Compute (a) last year's CM ratio and the break-even point in balls, Jind (b) the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball....
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 34,000 of these balls, with the following results: $ Sales (34,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income 850,000 510,000 340,000 212,000 128,000 $ Required: 1....
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 62,000 of these balls, with the following results: Sales (62,000 balls) $ 1,550,000 Variable expenses 930,000 Contribution margin 620,000 Fixed expenses 426,000 Net operating income $ 194,000 Required: 1....
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 42,000 of these balls, with the following results: Sales (42,000 balls) $ 1,050,000 Variable expenses 630,000 Contribution margin 420,000 Fixed expenses 266,000 Net operating income $ 154,000 Required: 1....
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results: Sales (30,000 balls) $ 750,000 Variable expenses 450,000 Contribution margin 300,000 Fixed expenses 210,000 Net operating income $ 90,000 Required: 1....
Do just 5, 6A and 6B!!!!! Northwood Company manufactures basketballs. The company has a ball that...
Do just 5, 6A and 6B!!!!!
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 36,000 of these balls, with the following results: Sales (36,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 900,000 540,000...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 44,000 of these balls, with the following results: Sales (44,000 balls) $ 1,100,000 Variable expenses 660,000 Contribution margin 440,000 Fixed expenses 317,000 Net operating income $ 123,000 Required: Compute...
Last year, the company sold 32,000 of these balls, with the following results: $ Sales (32,000...
Last year, the company sold 32,000 of these balls, with the following results: $ Sales (32,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income 800,000 480,000 320,000 211,000 109,000 $ Required: 1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball....
Thank you in advance. This question is so massive. Please work out the problem for me. Northwood Company manufactures ba...
Thank you in advance. This question is so massive. Please work out the problem for me. Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 37,000 of these balls, with the following results: Sales (37,000 balls) $ 1,100,000...
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results: $ Sales (30,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income 750,000 450.000 300,000 210,000 90,000 Required: 1. Compute...
Last year, the company sold 46,000 of these balls, with the following results: Sales (46,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,150,000 690,000 460,000 318,000 $ 142,000 Required: 1. Compute (a) last year's CM ratio and the break-even point in balls, Jind (b) the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball....
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 34,000 of these balls, with the following results: $ Sales (34,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income 850,000 510,000 340,000 212,000 128,000 $ Required: 1....
Do just 5, 6A and 6B!!!!!
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 36,000 of these balls, with the following results: Sales (36,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 900,000 540,000...
Last year, the company sold 32,000 of these balls, with the following results: $ Sales (32,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income 800,000 480,000 320,000 211,000 109,000 $ Required: 1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball....
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