The Spitfire Model Airplane Company has the following modified income statement ($000) at 100,000 units of production.

Question:

Revenue............. $10,000

Variable Cost ........... 6,500

Fixed Cost ............ 2,200

EBIT .............. $ 1,300

Interest (@ 10%) ............. 500

EBT .............. $ 800

Tax (@ 40%)............ 320

Net Income.............. $ 480

# shares............... 20,000

a. What are Spitfire's contribution margin and dollar breakeven point?

b. Calculate Spitfire's current DFL, DOL, and DTL.

c. Calculate the current EPS and estimate what it would become if sales declined by 25%. Use the DTL first and then recalculate the modified income statement. (Assume a negative EBT generates a negative tax.)

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...