Question

Globalisation is at work in banking industry, where globalisation refers to increase in competition by foreign competitors and home institutions’ doing business in the global market. To face up to the challenges of the internationalisation process banks of all sizes and from different countries should deal with long‐term issues and industry analysis as well as firm-specific strategies. Banks are no longer in the business of buying (i.e. saving) and selling (i.e. lending) money but that of offering complete financial services to the banking public. Australia’s major banks include CBA, ANZ, NAB and Westpack.

Regulation on the Australian banking industry includes the Australian Prudential Regulation Authority (APRA); the Australian Securities and Investments Commission (ASIC); the Reserve Bank of Australia (RBA); and the Australian Treasury. Explain how these regulatory authorities affect the four major banks’ strategies to take risky business such as lending to highly leveraged firms and/or investing on risky financial assets domestically and internationally.

Answer 1

Joyce Morphy
Requirement 1
Selling Price per mile	$          0.50
Less : Variable cost per mile	$        (0.20)
Contribution margin per mile	$    0.30
Break Even = Fixed Cost / Contribution margin
$215 / $0.30	717	Miles
Working Note :
Calculation of Variable cost per mile using High low method :
	No of Miles	Total operating costs
High	4400	$                    1,095.00
Low	3300	$                       875.00
Variable cost per mile = (1095-875)/(4400-3300)	$    0.20	per Mile
At 4400 Miles, Total operating costs = $1095
Fixed cost + 4400*$0.20 = $1095
Fixed cost = 1095 - 4400*0.2
$                                                                    215.00
Requirement 2
At 4200 Miles,
Revenue	$   2,100.00
Less : Variable cost	$   (840.00)
Contribution margin	$   1,260.00
Less : Fixed cost	$    (215.00)
Net Operating income	$   1,045.00
Degree of Operating Leverage = Contribution Margin / Net Operating Income
$1260 / $1045	1.2057
Requirement 3
Degree of Operating Leverage = % change in Net income / % change in sales
1.2057 = % change in net income / (25%)
% change in net income = -25%*1.2057	-30.1425%