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Concept Introduction:
Operating leverage can be defined as ability of firm to use fixed costs to generate better returns.
Variable expenses are associated with the amount of goods produced or services provided. These vary directly with the production level i.e. company's variable cost increases as the production increases and vice-a-versa.
Fixed expenses do not vary with the level of production. They do not change with the amount of goods or services a company produces. They remain same even if the company does not produce any product or provide any service during an accounting period.
Requirement a:
Risks associated with operating leverage
Concept Introduction:
Operating leverage can be defined as ability of firm to use fixed costs to generate better returns.
Financial leverage can be defined as ability of firm to increase better returns and reduce cost of firm by paying lesser taxes.
Variable expenses are associated with the amount of goods produced or services provided. These vary directly with the production level i.e. company's variable cost increases as the production increases and vice-a-versa.
Fixed expenses do not vary with the level of production. They do not change with the amount of goods or services a company produces. They remain same even if the company does not produce any product or provide any service during an accounting period.
Requirement b:
Similarities and differences between operating and financial leverage
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Chapter 12 Solutions
Accounting: What the Numbers Mean
- The adjusted trial balance of Crane Company shows these data pertaining to sales at the end of its fiscal year, October 31, 2025: Sales Revenue $904,300, Freight-Out $14,500, Sales Returns and Allowances $21,800, and Sales Discounts $14,200. Prepare the sales section of the income statement. 3. : CRANE COMPANY Income Statement (Partial) $ LA LA +A $arrow_forwardneed true answer of this general accounting questionarrow_forwardOn June 10, Larkspur Company purchased $7,200 of merchandise from Crane Company, on account, terms 3/10, n/30. Larkspur pays the freight costs of $430 on June 11. Goods totaling $200 are returned to Crane for credit on June 12. On June 19, Larkspur Company pays Crane Company in full, less the purchase discount. Both companies use a perpetual inventory system. (a) Your answer is partially correct. Prepare separate entries for each transaction on the books of Larkspur Company. (If no entry is required, select "No Entry" for the account titles and enter O for the amount in the relevant debit OR credit box. Entering zero in ALL boxes will result in the question being marked incorrect. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. List all debit entries before credit entries.) Date Account Titles and Explanation June 10 Inventory June 11 Accounts Payable Cash Debit 7,200 430 June…arrow_forward
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