You are managing a division with a degree of operating leverage of 2.35. What will happen to the operating profit if the number of units you sell decreases by 4.8 percent? A) 11.28 percent increase B) 11.28 percent decrease C) 4.8 percent decrease D) 2.04 percent decrease

You are managing a division with a degree of operating leverage of 2.35. What will happen to the operating profit if the number of units you sell decreases by 4.8 percent? A) 11.28 percent increase B) 11.28 percent decrease C) 4.8 percent decrease D) 2.04 percent decrease

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 4QE: Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its...

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You are managing a division with a degree of operating leverage of
2.35. What will happen to the operating profit if the number of units
you sell decreases by 4.8 percent?
A) 11.28 percent increase
B) 11.28 percent decrease
C) 4.8 percent decrease
D) 2.04 percent decrease

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Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firms production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firms gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firms gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?
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AutoSave OFF 096DCEP… CB Draw Page Layout Home Insert X [ ✓ Paste B35 A Arial A 1 Chapter 5: Applying Excel 2 3 Data 4 Unit sales 5 Selling price per unit 6 Variable expenses per unit 7 Fixed expenses BIU - fx =B31/833 49 50 30 Variable expenses varable 31 Contribution margin 32 Fixed expenses 33 Net operating income 11 12 Compute the CM ratio and variable expense ratio 13 Selling price per unit 14 Variable expenses per unit 15 Contribution margin per unit 16 17 CM ratio 18 Variable expense ratio 19 20 Compute the break-even point 21 Break-even in unit sales 22 Break-even in dollar sales 23 24 Compute the margin of safety 25 Margin of safety in dollars 26 Margin of safety percentage 27 28 Compute the degree of operating leverage 29 Sales 34 35 Degree of operating leverage 36 37 38 39 40 41 42 43 44 45 46 47 48 Ready T 8 9 Enter a formula into each of the cells marked with a ? below 10 Review Problem: CVP Relationships Chapter 5 Form V esc ✓ 10 1 + LO Accessibility: Good to go @ 2…
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Which of the following statements is true? Gross profit margin and operating profit margin are complements of each other and the two percentages add up to 100% In capital intensive industries sales volume changes result in a stable gross profit margin. In stable industries, such as retailers, the gross profit margin is generally volatile from year to year. Fixed costs do not vary proportionately with volume changes but remain the same within a relevant range of activity.
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N. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $8,000 and the total fixed expenses are $10,000. Under this scenario and assuming that total sales remain the same , what is the degree of operating leverage? O. Using the degree of operating leverage that you computed in the previous question , what is the estimated percent increase in net operating income of a 10% increase in sales ?
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A company with a high operating leverage will experience The same percentage change in operating income as a result of a percentage change in sales. A large percentage change in operating income as a result of a small percentage change in sales. OA small percentage change in operating income as a result of a small percentage change in sales. A small percentage change in operating Income as a result of a large percentage change in sales. Quest 5points) Callicott Corporation produces a product that sells for $120 per unit. The product's current sales are 25,400 units and its break-even sales are 16,000 units. The margin of safety as a percentage of sales is closest to: O 37% 73% 63% O 27%
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