GENERAL

PG 414-415
10. MCFRUGAL INC HAS EXPECTED SALES OF $20 MILLION. FIXED OPERATING COSTS ARE $2.5 MILLION, AND THE VARIABLE COST RATION IS 65 PERCENT. MCFRUGAL HAS OUTSTANDING A $ 12 MILLION, 8 PERCENT BANK LOAN. THE FIRM ALSO HAS OUTSTANDING 1 MILLION SHARES OF COMMON STICK ($1 PAR VALUE).MCFRUGAL’S TAX RATE IS 40 PERCENT.
A. WHAT IS MCFRUGAL DEGREE OF OPERATING LEVERAGE AT A SALES LEVEL OF $20 MILLION?
B. WHAT IS MCFRUGAL CURRENT DEGREE OF FINANCIAL LEVERAGE?
C.FORECAST MCFRUGAL EPS IF SALES DROP TO 15 MILLION.

12. EAST PUBLISHING COMPANY IS DOING AN ANALYSIS OF A PROPOSED NEW FINANACE TEXTBOOK . USING THE FOLLOWING DATA, ANSWER
FIXED COST PER EDITION
DEVELOPMENT (REVEIEWS, CLASS TESTING, AND SO ON) $18,000
COPYEDING 5,000
SELLING AND PROMOTION 7,000
TYPESETTING 40,000
TOTAL $70,000

VARIABLE COST PER COPY
PRINTING AND BINDING $4.20
ADMINISTRATIVE COSTS 1.60
SALESPEOPLE COMMISSION (2% OF SELLING PRICE) 0.60
AUTHORS ROYALTIES (12% OF SELLING PRICE) 3.60
BOOKSTORE DISCOUNTS (20 OF SELLING PRICE) 6.00
TOTAL $30.00

THE COMPANY’S MARGINAL TAX RATE IS 40 PERCENT
A. DETERMINE THE COMPANY’S BREAKEVEN VOLUME FOR THIS BOOK
1. IN UNITS
2. IN DOLLAR SALES
B. DEVELOP A BREAKEVEN CHART FOR THE TEXTBOOK.
C. DETERMINE THE NUMBER OF COPIES. EAST MUST SELL IN ORDER TO EARN AN (OPERATING) PROFIT OF $21,000 ON THIS BOOK.
D. SUPPOSE EAST FEELS THAT $30.00 IS TOO HIGH A PRICE TO CHARGE FOR THE NEW FINANCE TEXTBOOK. IT HAS EXAMINED THE COMPETITVE MARKET AND DETERMINED THAT $24.00 WOULD BE A BETTER SELLING PRICE. WHAT WOULD THE BREAKEVEN VOLUME BE AT THIS NEW SELLING PRICE?

15.RODNEY ROGERS, A RECENT BUSINESS SCHOOL GRADUATE, PLANS TO OPEN A WHOLESALE DIARY PRODUCTS FIRM. THE BUSINESS WILL BE COMPLETELY FINANCED WITH EQUITY. ROGERS EXPECTS FIRST YEAR SALES TO TOTAL $5,500,000. HE DESIRES TO EARN A TARGET PRETAX PROFIT OF $1,000,000 DURING HIS FIRST YEAR OF OPERATION. VARIABLE COST ARE 40 PERCENT OF…