COST-VOLUME ANALYSIS During its first year of operations, the S-Ray Corporation produced the following income statement results: Income…


During its first year of operations, the S-Ray Corporation produced the following income statement results:

Income Statement2013Net Sales400,000.00less: Cost of Goods Sold240,000.00Gross Profit160,000.00less: General & Administrative 60,000.00less: Marketing expenses60,000.00less: Depreciation20,000.00EBIT20,000.00less: Interest expenses10,000.00Earnings before taxes10,000.00less: Income taxes (30%)3,000.00Net earnings (loss)              7,000.00

Costs of goods sold are expected to vary with sales and be a constant percentage of sales. The general and administrative employees have been hired and are expected to remain a fixed cost. Marketing expenses are also expected to remain fixed since the current sales staff members are expected to remain on fixed salaries and no new hires are planned. The effective tax rate is expected to be 30 percent for a profitable firm.

Estimate the survival or EBDAT breakeven amount in terms of survival revenues necessary for the S-Ray Corporation to breakeven next year, or the Survival revenues (SR) to achieve EBDAT = 0.

Use the attached spreadsheet for analysis, _efu_homework2_excel.xlsx

ItemResultsFormulaRevenue (R )??<– RevenueVariable Cost (VC)??<– cost of goods soldCFC??<– Admin + Marketing + InterestVCRR??<– VC / RSurvival??<– CFC / (1 – VCRR)

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