Case 9 Palmetto Soups

What is break-even analysis (define)?

What is the purpose of finding the break-even point?
What is the Degree of Operating Leverage (define)?
What is the purpose of finding the Degree of Operating Leverage?

#1
1996 Pro Forma: CGS is ____________% of Sales= Raw Materials, Direct Labor and Variable
Selling Expenses.

#2 BE as % of Sales = Fixed Cost

1-Variable Cost % / Sales

Fixed Cost = Admin. + Depr. + Other + Int.

Variable Cost = Raw Materials, Direct Labor and Variable Selling Expenses
Variable Cost % = CGS/Sales

Degree of Operating Leverage (DOL) = Fixed Operating Costs / EBIT

Fixed Operating Costs = Admin. + Depr. + Other

#3 A 10% decrease in sales results in a % _______ (see #2, DOL) reduction in EBIT. So EBIT
is ______________.

#4 use Equation to find Sales. Then use that Sales Level to Prepare Pro Form Income Statement.

#5-8 Do Research.