Homework Answers
Impact on Warner Music Group: Salaries to the employees of an entity are treated as Fixed cost. Here Salary overhead costs are decreased by more than $ 250 crores (Fixed overhead cost)
a) Break even point is dividing the fixed cost with contribution per unit/margin, because of the above specified cut there is no change in the contribution per unit/margin.
Hence numerator decreased by $ 250 crores (Fixed cost) then the result of Break even point is Decreased (Decrease in Break even sales/no of units to be sold for break even)
b) Margin of safety is the measurement of Difference (Gap) between Break even sales and Actual sale, because of the reduction in the fixed cost, Break even sales were decreased. hence the gap between break even sale and Actual sale are raised, hence margin of safety is in Increasing trend.
c) Operating leverage: Because of the Fixed cost reduction the Operating profit will be Increases and the risk is low, hence the operating leverage is also low when compared to the operating leverage, if such reduction wouldn't be happen.
*Assuming that other factors remains constant.
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