Consider the following income statement of Bhaktapur Sport Manufacturing Company (BSMC): ParticularsAmount RsSales (10,000 units @ Rs 20 per unit)200,000Less: Variable costs @ Rs 10 per…

a. EPS Calculation

EPS (Earnings Per Share) is calculated as: $$\text{EPS}=\frac{\text{Net Income}}{\text{Number of Shares Outstanding}}$$ $$\text{EPS}=\frac{32,000}{10,000}=\boxed{3.20\text{ Rs per share}}$$

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b. Accounting Break-Even Point (BEP)

The accounting BEP is the level of sales where EBIT = 0 (i.e., no profit, no loss before tax and interest). Using the formula: $$\text{BEP (in units)}=\frac{\text{Fixed Costs}}{\text{Contribution Margin per Unit}}$$ $$\text{Contribution Margin per Unit}=\text{Selling Price}-\text{Variable Cost per Unit}=20-10=10\text{ Rs}$$ $$\text{BEP (units)}=\frac{50,000}{10}=\boxed{5,000\text{ units}}$$

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c. Leverage Calculations

1. Degree of Operating Leverage (DOL)

Measures sensitivity of EBIT to changes in sales. $$\text{DOL}=\frac{\text{Contribution Margin}}{\text{EBIT}}=\frac{100,000}{50,000}=\boxed{2}$$

2. Degree of Financial Leverage (DFL)

Measures sensitivity of EPS to changes in EBIT. $$\text{DFL}=\frac{\text{EBIT}}{\text{EBIT}-\text{Interest}}=\frac{50,000}{50,000-10,000}=\boxed{1.25}$$

3. Degree of Combined Leverage (DCL)

Measures sensitivity of EPS to changes in sales. $$\text{DCL}=\text{DOL}\times \text{DFL}=2\times 1.25=\boxed{2.5}$$

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Key Observations:

• DOL = 2: A 1% increase in sales leads to a 2% increase in EBIT.
• DFL = 1.25: A 1% increase in EBIT leads to a 1.25% increase in EPS.
• DCL = 2.5: A 1% increase in sales leads to a 2.5% increase in EPS.