Maxvill Motors has annual sales of $14,900.Its variable costs equal 60% of its sales and its fixed costs equal $1,000.If the company's sales increase 10%,what will be the percentage increase in the company's earnings before interest and taxes (EBIT)?
A) 10.69%
B) 12.02%
C) 14.54%
D) 11.30%
E) 9.37%

Question

Quizplus · Accepted Answer

First, we need to calculate the current earnings before interest and taxes (EBIT):
EBIT = Sales - Variable costs - Fixed costs
EBIT = $14,900 - 0.6($14,900) - $1,000
EBIT = $4,360

Next, we need to calculate the new sales figure if sales increase by 10%:
New sales = $14,900 + (0.1)($14,900)
New sales = $16,390

Now we can calculate the new earnings before interest and taxes (EBIT):
New EBIT = New sales - Variable costs - Fixed costs
New EBIT = $16,390 - 0.6($16,390) - $1,000
New EBIT = $4,898

Finally, we can calculate the percentage increase in EBIT:
Percentage increase in EBIT = (New EBIT - EBIT) / EBIT x 100%
Percentage increase in EBIT = ($4,898 - $4,360) / $4,360 x 100%
Percentage increase in EBIT = 12.02%

Therefore, the answer is B) 12.02%.

Maxvill Motors Has Annual Sales of $14,900