9-30 Degree of Operating Leverage The following sales and cost data (in thousands) are for twocompanies in the transportation industry:SalesVariable costsContribution marginFixed costsOperating profitCompany AAmount$100,00050,000$ 50,00015,000$ 35,000Percent of Sales100%5050%Company BAmount$100,00030,000$ 70,00040,000$ 30,000Percent of Sales100%3070%Required1. Calculate the degree of operating leverage (DOL) for each company. If sales increase from the presentlevel, which company benefits more? How do you know?2. Assume that sales rise 10% in the next year but that everything else remains constant. Calculate thepercentage increase in profit for each company. Are the results what you expected? Explain.3. In what sense is DOL a measure of risk?

Degree of operating leverage (DOL)-DOL measures how much operating income of a firm changes with…

Answered: 9-30 Degree of Operating Leverage The…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A 6 month Treasury bill is currently yielding 0.15 percent.A BBB-rated bond with similar term is yielding 18.24 percent.If the expected loss rate in case of default is 55 percent of the principle and the interest,what would be the implied probability of default?
20 Sales Contribution margin Fixed costs (1) Compute the degree of operating leverage (DOL) for each company. (2) Which company is expected to produce a greater percent increase in income from a 10% increase in sales? Required 1 Required 2 $ 7,825,600 6,375,600 4,989,600 Complete this question by entering your answers in the tabs below. Skittles's DOL Starburst's DOL Compute the degree of operating leverage (DOL) for each company. Degree of Operating Leverage $ Contribution margin $ Numerator: $ 3,828,000 1,428,000 918,000 Answer is complete but not entirely correct. 6,375,600 1,428,000 I $ 1 $ Denominator: Income II 2,910,000 = = 2,836,000 = Ratio Degree of Operating Leverage 2.25 0.49
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Operating Leverage
X Company Y Company Amount Percent Amount Percent Sales $ 148,000 100.00 $ 148,000 100.00 Variable costs 88,800 60.00 44,400 30.00 Contribution margin 59,200 40.00 103,600 70.00 Fixed costs 34,150 70,200 Operating income (Tig) 25,050 33,400 Y Company's margin of safety (MOS) in sales dollars (rounded) is:
Problem 12-21 (Algo) Prepare a contribution margin format income statement; answer what-if questions LO 12-7, 12-8, 12-9 Shown here is an income statement in the traditional format for a firm with a sales volume of 7,500 units. Cost formulas also are shown: Revenues Cost of goods sold ($5,900 + $2.25/unit) Gross profit Operating expenses: Selling ($1,200 + $0.10/unit) Administrative ($3,500 + $0.20/unit) Operating income $34,400 22,775 $ 11,625 1,950 5,000 $ 4,675 Required: a. Prepare an income statement in the contribution margin format. b. Calculate the contribution margin per unit and the contribution margin ratio. c. Calculate the firm's operating income (or loss) if the volume changed from 7,500 units to 1. 11,250 units. 2. 3,750 units. d. Refer to your answer to part a for total revenues of $34,400. Calculate the firm's operating income (or loss) if unit selling price and variable expenses per unit do not change and total revenues 1. Increase by $14,500. 2. Decrease by $3,000.
4.4 The following variable costing income statements are available for the Eight Compa and Nine Corporation: Eight Company P 700,000 350,000 350,000 200,000 P150.000 TT Nine Corporation P700,000 140,000 560,000 410,000 P150,000 Sales revenue Variable costs Contribution margin Fixed costs Net income Instructions: 1. Compute the degree of operating leverage for each company. 2. Assume that sales revenue decreases by 20%. Prepare a variable costing income statement for each company.
Cost Volume Profit Total Company produces one type of machine with the following costs and revenues for the year: Total revenues $4,200,000 Total fixed costs $1,400,000 Total variable costs $2,800,000 Total units produced and sold 700,000 a calculate the breakeven in unit b calculate the quantity that would produce an operating profit of $100000 c calculate the quantity that would produce an operating profit of 10 percent of sales dollars d calculate the breakeven quantity if sales increased by 20 perc ent e calculate the operating margin if 50000 unit are sold
Service Cost Allocation Harley Corp. has two service departments, (Admin Support Dept. & It Support Dept.) and two producing departments (AgencyLine and BancAssure). Provided below are the relevant data: Service Departments Operating Departments Admin Agency Line BancAssure Direct Costs P150,000 P300,000 P5,000,000 P6,000,000 Services by Admin Support 40% 40% 20% Services by IT Support 20% 70% 10% Requirements Prepare a 3 different complete service cost allocation report with details using the following methods: 1. Direct Method IT Services
Service Emphasis The following analysis of selected data is for each of the two services Rockville Corporation provides. Service G Service H Per-unit data at 10,000 services Sales price Service costs: Variable Fixed Selling and administrative expenses: Variable Fixed $ Revenue Less: Variable cost Contribution margin Labor hours per unit Contribution margin per labor hour $ $36 $ 19 6 G 5 3 In the Rockville's operation, labor capacity is the company's constraining resource. Each unit of G requires 3 hours of labor, and each unit of H requires 1 hours of labor. Assuming that all service can be sold at a normal price, prepare an analysis showing which of the two services should be provided with any unused productive capacity that Rockville might have. Service $23 36 $ 25 X 11 * $ 3 3.67 × $ 15 4 2 1 H 23 19 x 4 x 1 4 × Any unused capacity should be devoted to Service H, which has $2 less contribution margin per labor hour than does Service G. Any unused capacity should be devoted to…
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