9-30 Degree of Operating Leverage The following sales and cost data (in thousands) are for twocompanies in the transportation industry:SalesVariable costsContribution marginFixed costsOperating profitCompany AAmount$100,00050,000$ 50,00015,000$ 35,000Percent of Sales100%5050%Company BAmount$100,00030,000$ 70,00040,000$ 30,000Percent of Sales100%3070%Required1. Calculate the degree of operating leverage (DOL) for each company. If sales increase from the presentlevel, which company benefits more? How do you know?2. Assume that sales rise 10% in the next year but that everything else remains constant. Calculate thepercentage increase in profit for each company. Are the results what you expected? Explain.3. In what sense is DOL a measure of risk?

Degree of operating leverage (DOL)-DOL measures how much operating income of a firm changes with…

Answered: 9-30 Degree of Operating Leverage The…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Degree of Operating Leverage The following sales and cost data (in thousands) are for twocompanies in the transportation industry:Company A Company BAmount Percent of Sales Amount Percent of SalesSales $100,000 100% $100,000 100%Variable costs 50,000 50 30,000 30Contribution margin $ 50,000 50% $ 70,000 70%Fixed costs 15,000 40,000Operating profit $ 35,000 $ 30,000Required1. Calculate the degree of operating leverage (DOL) for each company. If sales increase from the presentlevel, which company benefits more? How do you know?2. Assume that sales rise 10% in the next year but that everything else remains constant. Calculate thepercentage increase in profit for each company. Are the results what you expected? Explain.3. In what sense is DOL a measure of risk?
8 The sales and cost data for two companies in the transportation industry are as follows: X Company Amount $ 132,000 79,200 Sales Variable costs Contribution margin Fixed costs Operating income (B) The annual breakeven point in sales dollars for X Company is: 52,800 36,300 $ 16,500 Percent 100.00 60.00 40.00 Y Company Amount $ 132,000 39,600 92,400 72,350 $ 20,050 Percent 100.00 30.00 70.00
The sales and cost data for two companies in the transportation industry are as follows: X Company Y Company Amount Percent Amount Percent Sales $ 150,000 100.00 $ 150,000 100.00 Variable costs 90,000 60.00 45,000 30.00 Contribution margin 60,000 40.00 105,000 70.00 Fixed costs 34,200 70,250 Operating income (πB) $ 25,800 $ 34,750 X Company's degree of operating leverage (DOL) at the current sales volume level is calculated to be:
X Company Y Company Amount Percent Amount Percent Sales $ 148,000 100.00 $ 148,000 100.00 Variable costs 88,800 60.00 44,400 30.00 Contribution margin 59,200 40.00 103,600 70.00 Fixed costs 34,150 70,200 Operating income (Tig) 25,050 33,400 Y Company's margin of safety (MOS) in sales dollars (rounded) is:
The sales and cost data for two companies in the transportation industry are as follows: X Company Y Company Amount Percent Amount Percent Sales $ 156,000 100.00 $ 156,000 100.00 Variable costs 93,600 60.00 46,800 30.00 Contribution margin 62,400 40.00 109,200 70.00 Fixed costs 34,350 70,400 Operating income (πB) $ 28,050 $ 38,800 X Company's margin of safety ratio (MOS%) (rounded) is:
The sales and cost data for two companies in the transportation industry are as follows: X Company Y Company Amount Percent Amount Percent Sales $ 136,000 100.00 $ 136,000 100.00 Variable costs 81,600 60.00 40,800 30.00 Contribution margin 54,400 40.00 95,200 70.00 Fixed costs 36,400 72,450 Operating income (πB) $ 18,000 $ 22,750 The annual breakeven point in sales dollars for X Company is: Multiple Choice $103,857. $91,000. $64,000. $111,769. $92,657.
Amount Sales 123,000 Variable expenses 49,200 Contribution margin 73,800 Fixed expenses 24,000 Net operating income 49,800 Determine the degree of operating leverage? %24
9 Sales Variable expenses Contribution margin Fixed expenses Net operating income Amount $ 96,000 38,400 57,600 45,120 $ 12,480 $ Mereu Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 7% increase in unit sales. 3. Construct a new contribution format income statement for the company assuming a 7% increase in unit sales. Complete this question by entering your answers in the tabs below. Sales 100% 40 60% Required 1 Required 2 Required 3 Construct a new contribution format income statement for the company assuming a 7% increase in unit sales. Engberg Company Contribution Income Statement Amount 0 Percent of Sales % % Required 2 0% Required 3 >
sales Sales 100% Company A Amount % of sales P110,000 Variable costs 33,000 Contibution Margin P 44,000 70% Fixed Costs Net Income 30% 66.000 30,000 P 14,000 100% 60% 40% Company B Amount % of P110,000 P 77,000 60,000 P 17,000 Calculate the degree of operating leverage of Company B
Assume that more than one product is being sold in each of the four following case situations: Case #1 Case #2 Case #3 Case #4 Sales $ 443,000 203,000 292,000 Variable expenses 140,070 84,680 Fixed expenses 52,000 470,000 Net operating income (loss) $ 82,350 $ 10,930 90,000 $ (18,680) Contribution margin ratio (percent) 45 % % 80 %
Required Information of 15 The following information applies to the questions displayed below] Westerville Company reported the following results from last year's operations: $2,300,000 Sales Variable expenses Contribution margin Fixed expenses 1,630, 000 24 460,000 $41,437,500 Net operating income erInt Average operating assets At the beginning of this year, the company has a $287,500 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $ 460,000 se% of sales $ 161,000 The company's minimum required rate of return is 15%. Required: 1 What is last year's margin? Prev 15 of 15 Nex てし Type here to search ye. 近 (6) F4 F5 F7 F8
Departmental Cost Allocation Robinson Products Company has two service departments(S1 and S2) and two production departments (P1 and P2). The distribution of each service department’s efforts (in percentages) to the other departments is:ToFrom S1 S2 P1 P2S1 — 10% 20% ?%S2 10% — ? 30The direct operating costs of the departments (including both variable and fixed costs) are:S1 $180,000S2 60,000P1 50,000P2 120,000Required1. Determine the total cost of P1 and P2 using the direct method.2. Determine the total cost of P1 and P2 using the step method.3. Determine the total cost of P1 and P2 using the reciprocal method.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS