Welker Products sells small kitchen gadgets for $15 each.The gadgets have a variable cost of $4 per unit,and Welker Products' fixed operating costs are $220,000 per year.Welker Products' capital structure includes 55% debt and 45% equity.Annual interest expense is $25,000,and the corporate tax rate is 35%.
a.Calculate the break-even point in units.
b.If Welker Products sells 25,000 units,calculate the firm's EBIT and net income.
c.If sales increase ten percent from 25,000 units to 30,000 units,estimate the firm's expected EBIT and net income.
d.Does Kelly Products use operating leverage and/or financial leverage? Explain.

Question

Welker Products sells small kitchen gadgets for $15 each.The gadgets have a variable cost of $4 per unit,and Welker Products' fixed operating costs are $220,000 per year.Welker Products' capital structure includes 55% debt and 45% equity.Annual interest expense is $25,000,and the corporate tax rate is 35%. 
a.Calculate the break-even point in units. 
b.If Welker Products sells 25,000 units,calculate the firm's EBIT and net income. 
c.If sales increase ten percent from 25,000 units to 30,000 units,estimate the firm's expected EBIT and net income. 
d.Does Kelly Products use operating leverage and/or financial leverage? Explain.

Quizplus · Accepted Answer

The Answer of Welker Products sells small kitchen gadgets for $15 each.The gadgets have a variable cost of $4 per unit,and Welker Products' fixed operating costs are $220,000 per year.Welker Products' capital structure includes 55% debt and 45% equity.Annual interest expense is $25,000,and the corporate tax rate is 35%. 
a.Calculate the break-even point in units. 
b.If Welker Products sells 25,000 units,calculate the firm's EBIT and net income. 
c.If sales increase ten percent from 25,000 units to 30,000 units,estimate the firm's expected EBIT and net income. 
d.Does Kelly Products use operating leverage and/or financial leverage? Explain.

Welker Products Sells Small Kitchen Gadgets for $15 Each