Question

(​Break-even

analysis​)

​, for the Hugo Boss Corporation. It represents the most recent​ year's operations, which ended yesterday. Your supervisor in the​ controller's office has just handed you a memorandum asking for written responses to the following​ questions:

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

b. If sales should increase by

30

​percent, by what percent would earnings before taxes​ (and net​ income) increase?

Sales	​$51,137,061
Variable costs	(20,413,000)
Revenue before fixed costs	​$30,724,061
Fixed costs	(10,313,000)
EBIT	​$20,411,061
Interest expense	(1,658,562)
Earnings before taxes	​$18,752,4999
Taxes at 45%	(8,438,625)
Net income	10,313,874

Answer 1

Contribution Margin Ratio = Contribution Margin/Sales

or Revenue before Fixed Costs/Sales

= 30,724,061/51,137,061

= 60.08%

a. Break even point in sales dollars = Fixed Costs/Contribution Margin Ratio

= 10,313,000/60.08%

= $17,165,446.07

b. Increase in Sales = 15,341,118.3

Contribution Margin = 60.08% = $9,216,943.87

There will be no increase in fixed costs and interest expense.

% increase in Earnings before taxes = 9,216,943.87/18,752,499

= 49.15%

% increase in Net income = 9,216,943.87(1-45%)/10,313,874

= 49.15%