Shown here are condensed income statements for two different companies (assume no income taxes).

Required
1. Compute times interest earned for Miller Company and for Weaver Company.
2. What happens to each company’s net income if sales increase by 30%?
3. What happens to each company’s net income if sales increase by 50%?
4. What happens to each company’s net income if sales decrease by 10%?
5. What happens to each company’s net income if sales decrease by 40%?

6. Which company would have a greater ability to pay interest expense if sales were to decrease?

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Miller Company Sales ..... Variable expenses (80%)... Income before interest.. Interest expense (fixed) Net income... $1,000,000 800,000 200,000 60,000 $ 140,000 Weaver Company Sales... Variable expenses (60%).. Income before interest.. Interest expense (fixed). Net income $1,000,000 600,000 400,000 260,000 $ 140,000