Jakarta Company is a service firm with current service revenue of $400,000 and a 40% contribution margin. Its fixed costs are $64,000. Maldives Company has current sales of $6,640,000 and a 50% contribution margin. Its fixed costs are $2,158,000. A. What is the margin of safety for Jakarta and Maldives? If required, round final answers to one decimal place. Margin of safety for Jakarta: ____% Margin of safety for Maldives: ____% B. Compare the margin of safety in dollars between the two companies. Which is stronger? a. Maldives is stronger because its margin of safety is $2,324,000 whereas Jakarta’s is $240,000. b. Maldives is stronger because its margin of safety is $240,000 whereas Jakarta’s is $2,324,000. c. Jakarta is stronger because its margin of safety is $2,324,000 whereas Maldives’s is $240,000. d. Jakarta is stronger because its margin of safety is $240,000 whereas Maldives’s is $2,324,000. _____ C. Compare the margin of safety in percentage between the two companies. Now, which one is stronger? a. Maldives is stronger because its % margin of safety is 35.0% whereas Jakarta’s is 60%. b. Maldives is stronger because its % margin of safety is 50% whereas Jakarta’s is 35.0%. c. Jakarta is stronger because its % margin of safety is 35.0% whereas Maldives’s is 60%. d. Jakarta is stronger because its % margin of safety is 60% whereas Maldives’s is 35.0%. _____ D. Compute the degree of operating leverage for both companies. If required, round final answers to two decimal places. Operating Leverage: Jakarta Maldives Compare the degree of operating leverage for both companies. Which company will benefit most from a 10% increase in sales? a. Operating leverage for Jakarta is 1.67; for Maldives it is 2.86. Maldives will benefit most from an increase in sales. b. Operating leverage for Jakarta is 1.67; for Maldives it is 2.86. Jakarta will benefit most from an increase in sales. c. Operating leverage for Jakarta is 2.86; for Maldives it is 1.67. Maldives will benefit most from an increase in sales. d. Operating leverage for Jakarta is 2.86; for Michelle it is 1.67. Jakarta will benefit most from an increase in sales.
Jakarta Company is a service firm with current service revenue of $400,000 and a 40% contribution margin. Its fixed costs are $64,000. Maldives Company has current sales of $6,640,000 and a 50% contribution margin. Its fixed costs are $2,158,000.
A. What is the margin of safety for Jakarta and Maldives? If required, round final answers to one decimal place.
Margin of safety for Jakarta: ____%
Margin of safety for Maldives: ____%
B. Compare the margin of safety in dollars between the two companies. Which is stronger?
a. Maldives is stronger because its margin of safety is $2,324,000 whereas Jakarta’s is $240,000.
b. Maldives is stronger because its margin of safety is $240,000 whereas Jakarta’s is $2,324,000.
c. Jakarta is stronger because its margin of safety is $2,324,000 whereas Maldives’s is $240,000.
d. Jakarta is stronger because its margin of safety is $240,000 whereas Maldives’s is $2,324,000.
_____
C. Compare the margin of safety in percentage between the two companies. Now, which one is stronger?
a. Maldives is stronger because its % margin of safety is 35.0% whereas Jakarta’s is 60%.
b. Maldives is stronger because its % margin of safety is 50% whereas Jakarta’s is 35.0%.
c. Jakarta is stronger because its % margin of safety is 35.0% whereas Maldives’s is 60%.
d. Jakarta is stronger because its % margin of safety is 60% whereas Maldives’s is 35.0%.
_____
D. Compute the degree of operating leverage for both companies. If required, round final answers to two decimal places.
Operating Leverage:
| Jakarta | |
| Maldives |
Compare the degree of operating leverage for both companies. Which company will benefit most from a 10% increase in sales?
a. Operating leverage for Jakarta is 1.67; for Maldives it is 2.86. Maldives will benefit most from an increase in sales.
b. Operating leverage for Jakarta is 1.67; for Maldives it is 2.86. Jakarta will benefit most from an increase in sales.
c. Operating leverage for Jakarta is 2.86; for Maldives it is 1.67. Maldives will benefit most from an increase in sales.
d. Operating leverage for Jakarta is 2.86; for Michelle it is 1.67. Jakarta will benefit most from an increase in sales.
_____
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