Question

Haunted Forest, Inc.is selling fog machines. Use the following information about Haunted Forest, Inc. to answer...

Haunted Forest, Inc.is selling fog machines.

Use the following information about Haunted Forest, Inc. to answer the following questions.

Average selling price per unit $338.

Variable cost per unit $215

Units sold 332

Fixed costs $16,002

Interest expense $3,120

Based on the data above, what will be the resulting percentage change in earnings per share if they expect units produced and sold to change -4.1 percent?

(You should calculate the degree of total (combined) leverage first).

(Write the percentage sign in the "units" box).

Round the answer to two decimals

Homework Answers

Answer #1

Answer:

Degree of Combined Leverage = [Q*(P-v)] / [Q*(P-V) – Fixed Cost – Interest]
Degree of Combined Leverage = [332 * ($338 - $215)] / [332 *($338 - $215) - $16,002 - $3,120]
Degree of Combined Leverage = [332 * $123] / [$40,836 - $16,002 - $3,120]
Degree of Combined Leverage = $40,836 / $21,714
Degree of Combined Leverage = 1.88

Percentage change in Earnings per share = Degree of Combined Leverage * -4.1%
Percentage change in Earnings per share = 1.88 * -4.1%
Percentage change in Earnings per share = -7.71%

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