FIN 301 YOUR NAME: _________________________

LEVERAGE PROBLEM

Pro-Forma Income Statement

For Projected Sales Level of $ 1,500,000

SALES $ 1,500,000

Less: VC (250,000)

Gross Profit $ 1,250,000

Less: FC 1.050,000

EBIT (Operating Profit) $ 200,000

ASSUME THIS PRO FORMA INCOME STATEMENT REFLECTS THE OPERATING COST STRUCTURE FOR A NEW PROJECT. WHAT IS PROJECTED OPERATING BREAKEVEN POINT FOR THE COMPANY GIVEN THE PROPOSED COST STRUCTURE?

BE =

CALCULATE THE COMPANY%u2019S DEGREE OF OPERATING LEVERAGE (DOL),

DOL =

Using the DOL calculation above, what will be the EBIT if Sales come in 10% BELOW the pro-forma projection?