Assume that the operating results for last year were as follows: Sales: $1,500,000 Variable Expenses: $900,000 Contribution Margin: $600,000 Fixed Expenses: $200,000 Net Operating Income: $400,000 Required: a. Compute the degree of operating leverage at the current level of sales. b. The president expects sales to increase by 10% next year. By how much should net operating income increase?

Assume that the operating results for last year were as follows: Sales: $1,500,000 Variable Expenses: $900,000 Contribution Margin: $600,000 Fixed Expenses: $200,000 Net Operating Income: $400,000 Required: a. Compute the degree of operating leverage at the current level of sales. b. The president expects sales to increase by 10% next year. By how much should net operating income increase?

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter22: Master Budget (master)

Section: Chapter Questions

Problem 5R: Suppose the company has just the opposite news and now expects unit sales for August, September, and...

See similar textbooks

Similar questions

Suppose the company has just the opposite news and now expects unit sales for August, September, and October to be double (200%) the original estimates. What effect will this have on the company’s net income and borrowing? Explain your findings.
Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?
AFN Equation Refer to Problem 9-1. What would be the additional funds needed if the companys year-end 2018 assets had been 7 million? Assume that all other numbers, including sales, are the same as in Problem 9-1 and that the company is operating at full capacity. Why is this AFN different from the one you found in Problem 9-1? Is the companys capital intensity ratio the same or different?
If a firm has a contribution margin of $78M90 and a net income of $13,700 for the current month, what is their degree of operating leverage? 0.21 1.21 2.4 5.7
If a firm has a contribution margin of $59,690 and a net income of $12,700 for the current month, what is their degree of operating leverage? A. 0.18 B. 1.18 C. 2.4 D. 4.7
The income statement comparison for Rush Delivery Company shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the ROI. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the RI for each year. Explain how this compares to your findings in part C.
Wallace Industries has total contribution margin of $58,560 and net income of $24,400 for the month of April. Wallace expects sales volume to increase by 5% in May. What are the degree of operating leverage and the expected percent change in income for Wallace Industries? 0.42 and 2.2% 0.42and5% 2.4andl2% 2.Sandl3%
Macom Manufacturing has total contribution margin of $61,250 and net income of $24,500 for the month of June. Marcus expects sales volume to increase by 10% in July. What are the degree of operating leverage and the expected percent change in income for Macom Manufacturing? 0.4 and 10% 2.5 and 10% 2.5 and 25% 5.0 and 50%
The following selected data pertain to the Argent Division for last year: Required: 1. How much is the residual income? 2. How much is the return on investment? (Rounded to four significant digits.)
Margin, Turnover, Return on Investment, Average Operating Assets Elway Company provided the following income statement for the last year: At the beginning of last year, Elway had 28,300,000 in operating assets. At the end of the year, Elway had 23,700,000 in operating assets. Required: 1. Compute average operating assets. 2. Compute the margin and turnover ratios for last year. (Note: Round the answer for margin ratio to two decimal places.) 3. Compute ROI. (Note: Round answer to two decimal places.) 4. CONCEPTUAL CONNECTION Briefly explain the meaning of ROI. 5. CONCEPTUAL CONNECTION Comment on why the ROI for Elway Company is relatively high (as compared to the lower ROI of a typical manufacturing company).
Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Stricklers sales last year were 3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was 1,800,000. The firm had fixed assets totaling 535,000. Stricklers payables deferral period is 45 days. a. Calculate Stricklers cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Stricklers managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Stricklers cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?