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 of BSMC

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

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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).

Given:

• Contribution margin per unit (CMU) = Selling price per unit – Variable cost per unit $$\text{CMU}=20-10=\text{Rs 10 per unit}$$
• Fixed costs (FC) = Rs 50,000

The BEP in units is: $$\text{BEP (units)}=\frac{\text{Fixed Costs}}{\text{Contribution Margin per Unit}}=\frac{50,000}{10}=\text{5,000 units}$$

The BEP in sales revenue is: $$\text{BEP (sales)}=\text{BEP (units)}\times \text{Selling Price per Unit}=5,000\times 20=\text{Rs 100,000}$$

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c. Leverage Measures

1. Degree of Operating Leverage (DOL)

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

2. Degree of Financial Leverage (DFL)

Measures sensitivity of EPS to changes in EBIT. $$\text{DFL}=\frac{\text{EBIT}}{\text{EBIT}-\text{Interest}}=\frac{50,000}{50,000-10,000}=\frac{50,000}{40,000}=\text{1.25}$$

3. Degree of Combined (Total) Leverage (DCL)

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

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Note: All calculations are based on the given income statement data. The DOL > 1 indicates high operating leverage, while DFL > 1 shows the impact of debt financing on EPS. The DCL = 2.5 means a 1% increase in sales leads to a 2.5% increase in EPS.