From the following financial data of Company A and Company B, PREPARE their Income Statements. Company A (₹) Company B (₹) Variable Cost 88,000 50%…

Income Statements of Company A and Company B Company A (₹) Company B (₹) Sales 1,32,000 1,12,000 Less: Variable cost 88,000 56,000 Contribution 44,000 56,000 Less: Fixed Cost 26,500 42,000 Earnings before interest and tax (EBIT) 17,500 14,000 Less: Interest 14,000 11,000 Earnings before tax (EBT) 3,500 3,000 Less: Tax @ 30% 1,050 900 Earnings after tax (EAT) 2,450 2,100 Working Notes: Company A (i) Financial Leverage = EBIT / EBT i.e EBIT - Interest So, 5 = EBIT / (EBIT-14,000) Or, 5 (EBIT – 14,000) = EBIT Or, 4 EBIT = 70,000 Or, EBIT = 17,500 (ii) Contribution = EBIT + Fixed Cost = 17,500 +26,500 = 44,000 (iii) Sales = Contribution + Variable cost = 44,000 +88,000 = 1,32,000 Company B (i) Operating Leverage = 1/Margin of Safety = Contribution / EBIT 1/0.25 = Contribution / 14,000 4 = Contribution /14,000 Contribution = 14,000 x 4 = 56,000 (ii) Fixed Cost = Contribution – EBIT = 56,000 – 14,000 = 42,000 (iii) Contribution = 50% of Sales (as Variable Cost is 50% of Sales) Sales = 56,000 x 2 = 1,12,000