Your business plan for your proposed start-up firm envisions first-year revenues of $180,000, fixed costs of $60,000, and variable costs equal to one-third of revenue. a. What are expected profits based on these expectations? (Round your answer to nearest whole number.) Expected profit b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits? (Round your answer to 2 decimal places.) Degree of operating leverage c. If sales are 10% below expectation, what will be the percentage decrease in profits? (Round your answer to nearest whole number.) Decrease in profits %

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Your business plan for your proposed start-up firm envisions first-year revenues of $180,000, fixed costs of $60,000, and variable costs
equal to one-third of revenue.
a. What are expected profits based on these expectations? (Round your answer to nearest whole number.)
Expected profit
b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits? (Round your answer to 2
decimal places.)
Degree of operating leverage
c. If sales are 10% below expectation, what will be the percentage decrease in profits? (Round your answer to nearest whole number.)
Decrease in profits
%
Transcribed Image Text:Your business plan for your proposed start-up firm envisions first-year revenues of $180,000, fixed costs of $60,000, and variable costs equal to one-third of revenue. a. What are expected profits based on these expectations? (Round your answer to nearest whole number.) Expected profit b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits? (Round your answer to 2 decimal places.) Degree of operating leverage c. If sales are 10% below expectation, what will be the percentage decrease in profits? (Round your answer to nearest whole number.) Decrease in profits %
e. Based on the DOL, what is the largest percentage shortfall in sales relative to original expectations that the firm can sustain before
profits turn negative? (Round your answer to 1 decimal place.)
Shortfall
%
f. What are break-even sales at this point? (Round your answer to nearest whole number.)
Break-even sales
Transcribed Image Text:e. Based on the DOL, what is the largest percentage shortfall in sales relative to original expectations that the firm can sustain before profits turn negative? (Round your answer to 1 decimal place.) Shortfall % f. What are break-even sales at this point? (Round your answer to nearest whole number.) Break-even sales
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