Question

Problem 17-26 Atech has foued costs of $52 million and profits of $2 million. Its competitor ZTech, is roughly the same size and this year earned the same profits, $2 million. However ZTech operates with fored costs of $166 million and lower variable costs 3. Calculate the operating leverage for each firm. (Round your answers to 2 decimal places.) DOL ATech IDOL ZTech b. Which firm will likely have higher profits if the economy strengthens? ATech Tarn < Prev 13 of 14 Next > W SDFG HK-1 cmd

Answer 1

usine b waten I bewer Apartment, . Ex of Enterprise fourred is را در اباد عطا اله ما به همراه مرور عامر الملا باسم ام a A tech has fixed cost of $5.2 million and profit of 82 . Its competitor, z tech is roughly the syre size this year earned the same prophe However, 2 Tech operates with fined cost alt and lower coriable cost some prehb32 million Calculate operating leverage of each firm. Ars _lel culonon og_creschip leverage Csatpilzebos EB21 Contribution Sales variable lost on_Profit + Fixed lost. Calculation of operating leverage of Alech. Contini tuhma_Profit.+ Fixed cost _ _$_2 million_+$5-2 million 2 $7.2_milin Operating leverage of a techis, $ 7.2 millon - 2 million ----£3.6 million times. Calcul ahon of 2 Tech OOL.Loperabieleverage) contribution 2 Sales- Variable lost or Profitt fixed Costa . Conhilton 2 $2 millim t$1.66 million. 3. 66 millim Openating leverage of 2 rechets, $3.66 million $ 2 million

- d2 which firm will have higher profin if the economy strength Ans Ans. The degree of operating leverage is a multiple that measures how much the operating income of a company will change in - response_h_a_change with sales The Dol ratio assist analyst in determining the impact of any change the sale on company_earning A company with high operating levenge has a large propornon of fixed costs, which means that a big increase in sales can lead to outsited changes in mafis form me celove wiluahan-perfit of operating leverage of A tech is more compared to 2 tech therefore A tech will likely to have higher prefits of the co economy strengthens.