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

(c) 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 = 1 EBIT 0.25 = 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