The Castillo Products Company described in Problem 6 had a very difficult operating year in 2009, resulting in a net loss of $65,000 on sales of $900,000. In 2010, sales jumped to $1,500,000, and a net profit after taxes was earned. The firm’s income statements are shown on the following page.

A. Calculate each income statement item for 2009 as a percent of the 2009 sales level. Make the same calculations for 2010. Determine which cost or expense items varied directly with sales for the two-year period.
B. Use the information in Part A to classify specific expense items as being either variable or fixed expenses. Then estimate Castillo’s EBDAT breakeven in terms of survival revenues if interest expenses had remained at the 2009 level ($45,000) in 2010.
C. Estimate the dollar amount of survival revenues actually needed by the Castillo Products Company to reach EBDAT breakeven in 2010, given that more debt was obtained and interest expenses increased to$60,000.

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CASTILLO PRODUCTS COMPANY 2009 2010 Net sales Cost of goods sold Gross profit Marketing General and adm inistrative Depreciation EBIT Interest Eamings before taxes Income taxes Net income (loss $900,000 -540,000 360,000 90,000 250,000 40,000 20,000 45,000 65,000 $1,500,000 900,000 600,000 150,000 250,000 40,000 160,000 -60,000 100,000 25,000 75000 S 65,000 Includes tax loss carryforward from 2009.