Use the information from the previous two problems. Calculate BWPs breakeven point in units and dollars, with

Question:

Use the information from the previous two problems. Calculate BWP’s breakeven point in units and dollars, with and without the purchase of the new machine.

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

Variable cost ............6,500

Fixed cost ..............2,200

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

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

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

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

EAT $ ................480

Number of 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...