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

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Answer 1

Question

Chapter 12, Problem 12.31C

To determine

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

To determine

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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The audited accounts of Lindsay Co. for year-end August 31, 2014 show a profit of $3,115,000 after charging the following: Depreciation 430,000 Rent 175,000 Legal fees 1,350,000 Audit fees 88,000 Donations 119,000 Bad debts 242,000 Foreign Travel 395,750 Interest payments 62,375 Other Information: Legal fees are as follows: Expenses in respect of recovery of debts, $585,000 Expenses related to the increase private share capital, $765,000 Lindsay Co. donated $65,500 to UTECH University and $53,500 to HELP, a private charity registered under the Charities Act. Bad debts are as follows: A loan of $76,130 to Derek Stan who failed to repayit. $63,017, owed by Simplicity Ltd. which was declared bankrupt. The balance is a percentage of receivables at year end which is deemed to be bad. Foreign travel expense included $268,210 for a vacation package for the marketing manager’s and his family plane tickets. The remaining amount was for a business trip to meet with potential suppliers.…

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Answer 2

Question

Chapter 12, Problem 12.31C

To determine

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

To determine

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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Answer 3

Question

Chapter 12, Problem 12.31C

To determine

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

To determine

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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Answer 4

Question

Chapter 12, Problem 12.31C

To determine

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

To determine

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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Answer 5

Chapter 12, Problem 12.31C

To determine

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

To determine

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

Answer 6

Chapter 12, Problem 12.31C

To determine

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

Answer 7

Chapter 12, Problem 12.31C

To determine

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

Answer 8

To determine

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

Answer 9

To determine

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

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 12 - Prob. 12.1ME Ch. 12 - Prob. 12.2ME Ch. 12 - Prob. 12.3ME Ch. 12 - Prob. 12.4ME Ch. 12 - Prob. 12.5ME Ch. 12 - Prob. 12.6ME Ch. 12 - Exercise 12.7 LO 3 Cost classifications For each...Ch. 12 - Exercise 12.8 LO 3 Cost classifications For each...Ch. 12 - Prob. 12.9E Ch. 12 - Prob. 12.10E

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