Ski season just? ended, however, so the president of the companyhas started to focus more on the financial aspects of managing thebusiness. He has set up a meeting for next week with the? CFO,Maria? Sanchez, to discuss matters such as the business andfinancial risks faced by the company.

?Accordingly, Maria has asked you to prepare an analysis toassist her in her discussions with the president. As a first stepin your? work, you compiled the information in the popup?window,

Output level	79,000 units
Operating assets	?3,400,000
Operating asset turnover	6 times
Return on operating assets	31%
Degree of operating leverage	4 times
Interest expense	?520,000
Tax rate	39?%

?, regarding the cost structure of the? company:

                                               Asthe next? step, you need to determine the? break-even point inunits of output for the company. One of your strong points has beenthat you always prepare supporting work papers that show how youarrived at your conclusions. You know Maria would like to see thesework papers to facilitate her review of your work.? Therefore, youwill have the information you require to prepare an analyticalincome statement for the company. You are sure that Maria wouldalso like to see this statement. In? addition, you know that youneed it to be able to answer the following questions. You also knowMaria expects you to? prepare, in a format that is presentable tothe? president, answers to the following questions to serve as abasis for her discussions with the president.

a. What is the? firm's break-even point insales? dollars?

b. If sales should increase by 20 percent? (asthe president? expects), by what percentage would EBT? (earningsbefore? taxes) and net income? increase?

c. Prepare another income? statement, this timeto verify the calculations from part (b?).

a. Before you can compute the? firm's break-even point in sales?dollars, you need to compute some items on the? firm's incomestatement.

The? firm's operating assets are 3,400,000 and the operatingasset turnover is 6 times. What are the? firm's sales? revenues?(Round to the nearest? dollar.)

The? firm's operating assets are 3,400,000 and the return onoperating assets is 31?%. What is the? firm's EBIT? (Round to thenearest? dollar.)

Given the degree of operating leverage of 4 times the sales andEBIT computed in previous? steps, what are the? firm's totalvariable? costs? (Round to the nearest? dollar.)

Based on the computed? sales, EBIT, and variable? costs, whatare the? firm's total fixed? costs? (Round to the nearest?dollar.)

Compute the? EBT, taxes, and net income to complete thefollowing income statement.???(Round up all items to the nearest?dollar.)??

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	Sales revenues	$20,400,000
	Less: Variable costs	16,184,000
	Less: Fixed costs	3,162,000
	Equals: EBIT	$1,054,000
	Less: Interest expense	520,000
	Equals: EBT
	Less: Taxes (39%)
	Equals: Net income

What is the? firm's break-even point in sales? dollars?

?

?b. If sales should increase by 20 percent? (as the president?expects), by what percentage would EBT? (earnings before? taxes)and net income? increase?

c. Prepare another income statement to verify the calculationsfrom part (b?).

If sales should increase by 20 percent, what will the forecastlevel of sales revenues? be?

Since Variable costs also increase by 20 percent, what is theforecast level of variable? costs?

Complete the following income statement after the increase insales.

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	Sales revenues	$24,480,000
	Less: Variable costs	19,420,800
	Less: Fixed costs	3,162,000
	Equals: EBIT
	Less: Interest expense	520,000
	Equals: EBT
	Less: Taxes (39%)
	Equals: Net income

Using the EBT from the two income? statements, what is thepercentage change in the? EBT?

?%

?(Round to the nearest whole? percent.)