Homework Answers
| Scenario-1 | Scenario-2 | |||
| Sales | $ 8,000,000 | $ 8,560,000 | ||
| Variable cost-55% | $ (4,400,000) | $ (4,708,000) | ||
| Contribution | $ 3,600,000 | $ 3,852,000 | ||
| Fixed cost | $ (600,000) | $ (600,000) | ||
| Earning before interest and tax | $ 3,000,000 | $ 3,252,000 | ||
| Percentage change in Sale | (Scenario 2 Sale-Scenario 1 Sale)*100/Scenario 1 sale | |||
| Percentage change in Sale | 7.00% | |||
| Percentage change in EBIT | (Scenario 2 EBIT - Scenario 1 EBIT)*100/Scenario 1 EBIT | |||
| Percentage change in EBIT | 8.40% | |||
| Operating leverage= | Contribution/EBIT | |||
| Operating leverage= | 3852000/3252000 | |||
| Operating leverage= | 1.18 | |||
| Operating leverage defines the expected change in EBIT based on the change in the sale. | ||||
| In the given situation, change in the sale is 1% and operating leverage is 2.5 so resulting | ||||
| expected change in EBIT will be 1%*2.5= 2.5% | ||||
| Hence the given statement is true. | ||||
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2. A review of the degree of operating leverage (DOL) It is December 31. Last year,...
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#11 Variable operating costs 45,000 Gross profit Fixed operating costs 20,000) Net operating income25,000 Interest Earnings...
#11
Variable operating costs 45,000 Gross profit Fixed operating costs 20,000) Net operating income25,000 Interest Earnings before taxes 15,000) 10,000 4,000) 6,000 Taxes (40%) Net income Compute Surfside's degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL). 12-11 Data Recovery Systems (DRS) has a degree of operating leverage (DOL) equal to 3.2x and a degree of total leverage (DTL) equal to 8x. DRS forecasts that this year's sales will be $300,000 and that...
Tang Co.'s sales increase by 15%. If Tang Co. has a degree of operating leverage (DOL)...
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How can I determine current DOL (degree of operating leverage), DFL (degree of financial leverage), and...
How can I determine current
DOL (degree of operating leverage), DFL (degree of financial
leverage), and DCL (degree of combined leverage)? If maximization
of earning per share is the goal, what is the indifference EBIT
(EBIT*)? Also, Once the expansion is completed, the sales are
expected to increase to $5,000,000. How can I calculate the new
EBIT. At the new EBIT which method of financing results in a higher
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new...
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#11
Variable operating costs 45,000 Gross profit Fixed operating costs 20,000) Net operating income25,000 Interest Earnings before taxes 15,000) 10,000 4,000) 6,000 Taxes (40%) Net income Compute Surfside's degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL). 12-11 Data Recovery Systems (DRS) has a degree of operating leverage (DOL) equal to 3.2x and a degree of total leverage (DTL) equal to 8x. DRS forecasts that this year's sales will be $300,000 and that...
Tang Co.'s sales increase by 15%. If Tang Co. has a degree of operating leverage (DOL) of 3.0, what is the expected change in EBIT? а. 5% b. 15% C. 30% d. 45%
How can I determine current
DOL (degree of operating leverage), DFL (degree of financial
leverage), and DCL (degree of combined leverage)? If maximization
of earning per share is the goal, what is the indifference EBIT
(EBIT*)? Also, Once the expansion is completed, the sales are
expected to increase to $5,000,000. How can I calculate the new
EBIT. At the new EBIT which method of financing results in a higher
EPS? Calculate EPS for both plans at this new EBIT.
new...
Clipe ASSIC 8. Analyzing riskiness using a firm's degree of leverage Select the degree of leverage that completes the following sentence. The is the percentage change in earnings before interest and taxes (EBIT) that results from a given percentage change in sales. Expert Analysts Resources (EAR) has provided you with the following information about three companies you are currently evaluating: Three Waters Co. General Products Co. Degree of Operating Leverage (DOL) Degree of Financial Leverage (DFL) Praxis Corp. 2.0 5.5...
Exercise 9-32 Degree of Operating Leverage (DOL) (LO 9-5] Tasty Kreme and Krispy Kake are both producers of baked goods, but each has followed a different production strategy. The differences in their strategies resulted in differences in their cost structure, as shown in the following table: Estimated sales in units Unit price Variable cost per unit Total fixed costs TastyKreme Krispy Kake 28,000 27,000 8 8 5 $ 42,000 $81,000 3 Required: 1. Compute the operating income and degree of...
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