Fixed Costs That Cat and Dogs, Inc. Term Paper

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fixed costs that Cat and Dogs, Inc. have include rent and executive salaries, which are paid no matter how many units the company builds. The company's total fixed costs are $113,200 per month. Variable costs are the factory labor and raw materials, which are $2.20 per unit ($1.50 labor plus $.70 raw materials). The company's gross profit margin per unit is 72.5%, calculated as $5.80 ($8.00 per unit sales price less $2.20 per unit cost to manufacture) divided by $8.00. The sales necessary to break even are $156,137.93. At $8 per unit, this works out to be 19,518 units, rounded, since it's not possible to make a partial unit. The following table describes the income and expenses expected by Cats and Dogs, Inc. If they sell 19,518 units:

Income (19,518 $8 units)


Variable Expenses (19,518 $2.20 units)


Fixed Expenses


Profit (or Loss)


Prepare an income statement.

Athens Corporation

Income Statement

For the Year Ended December 31, 2003


Gross Sales


Less Cost of Goods Sold


Gross Profit (Loss)







Selling and Administrative


Total Expenses


Net Income (Loss) Before Taxes


Less Taxes (40%)


Net Income (Loss) After Taxes


3. Calculate the following:

a) Sales

Profit Margin = Net Income / Sales

12% = $90,000 / X

Sales = $750,000

b) Total Assets

Return on Assets = Net Income / Total Assets

20% = $90,000 / X

Total Assets = $450,000

c) Total Asset Turnover

Total Asset Turnover = Net Sales / Total Assets

X = $750,000 / $450,000

Total Asset Turnover = 166%

d) Total Debt

Debt to Assets Ratio = Total Debt / Total Assets

55% = X / $450,000

Total Debt = $247,500

e) Stockholders Equity

Stockholders Equity = Total Assets -- Total Liabilities

X = $450,000 - $247,500

Stockholders Equity = $202,500

f) Return on Equity

Return on Equity = Net Income / Shareholders Equity

X = $90,000 / $202,500

Return on Equity = 44%

4. If we divide users of financial ratios into short-term lenders, long-term lenders, and stockholders, which ratios would each group be most interested in, and for what reasons?

Short-term lenders are interested in whether or not their loans and interest will be paid when due. Because time is of the essence for these payments, these lenders are interested in the company's profit margin and earning power.
These show the company's ability to use the firm's assets to generate earnings independent of the financing mix.

Long-term lenders are interested with the long-term viability of the business. In order to help them determine this, the profitability ratios and gearing rations of the business are also of interest. These lenders are also interested in whether or not their loans and interest will be paid when due, but because these payments are due over a longer period of time, they are concerned with the long-term viability of the business. Total assets, total asset turnover and total debt all tell the long-term lender how well the company is managing earnings in relation to debt and equity used to finance it.

Shareholders are interested in their returns in relation to the amount of risk associated with their investment. Return on equity and stockholders equity tell how much the company is earning on funds contributed by stockholders after all expenses, including interest, have been met. In addition, shareholders are also interested in earnings per common share, dividends per common share, and the payout rate.

5. a) Prepare a monthly schedule for cash receipts for April through June.




Cash Sales




Collections on Accounts Receivable




Total Cash Receipts




b) What is the balance of Receivables at the end of June?

The receivables balance at the end of….....

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