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Tom [10]
3 years ago
15

Firm X and Firm Y both sell the same products at the same price; both firms are the same size with identical sales levels; Firm

X has lower fixed costs and higher variable operating costs than Firm Y. Which firm has the greatest variability in its operating profits?
Business
1 answer:
Vika [28.1K]3 years ago
4 0

Answer:

The options are given below:

A. Firm X

B. Firm Y

C. Same variability of operating profits

D. It would depend on tax effect on taxable income

The correct option is B. Firm Y

Explanation:

This is because firm Y has a higher operating leverage than firm X.

<u>Operating Leverage</u> refers to a cost-accounting formula that measures the degree to which a firm can increase operating income by increasing revenue. Operating leverage actually boils down to the analysis of fixed costs and variable costs, and it is highest in companies that have a high fixed operating costs in comparison with variable operating costs. What this means is that this kind of company makes use of more fixed assets. On the other hand, operating leverage is lowest in companies that have a low fixed operating costs when compared with variable operating costs.

Companies with high operating leverage are capable of making more money from each additional sale if they do not have to incur more costs to produce more sales.

Therefore, from the scenario given above, we can conclude that firm Y has a higher operating leverage than firm X, because firm X has lower fixed costs than firm Y, and a higher variable cost than firm Y as well. Hence, firm Y has the potential to make more operating profits from its business activities.

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Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery ba
koban [17]

Answer:

d. 5.14%.

Explanation:

Calculation to determine the best estimate of the after-tax cost of debt.

First step

Based on the information given we would make use of rate formula in excel.

=rate(nper,pmt,-pv,fv)

Where,

nper= coupon every six months for 20 years = 40 coupon payments

Pmt =$1000*7.25%*6/12=$36.25

Pv = $875

Fv =$1000

Let plug in the formula

=rate(40,36.25,-875,1000)=4.28% semiannually

=4.28% *2=8.56% annually

Now let calculate the after tax cost of debt using this formula

After tax cost of debt=8.56%*(1-t)

Where,

t represent tax rate of 40%

Let plug in the formula

After tax cost of debt=8.56%*(1-0.4)

After tax cost of debt=5.14%

Therefore the best estimate of the after-tax cost of debt is 5.14%

8 0
2 years ago
Which of the following is an example of marginal cost?
cestrela7 [59]

Answer:

B

Explanation:

6 0
3 years ago
The cost to manufacture one unit of Rinker Audio Products' bestselling hearing aid, the Magnifier, is $87.50. The CFO of the com
padilas [110]

Answer:

d. economies of scale

Explanation:

Based on the information provided within the question it can be said that this concept is known as an economy of scale. Like mentioned in the question this concept states that as a company scales their operation, the cost of each input unit decreases as their output or production increases, Thus granting the company a cost advantage. As is happening in this scenario.

4 0
3 years ago
If we believe that "variety is the spice of life," then we should be more concerned about the excess capacity in monopolistic co
Sedaia [141]

Answer:

B) False

Explanation:

One of the main characteristics of monopolistic competition is that many suppliers sell products that are different from one another, so they cannot be considered perfect substitutes. For example, restaurants usually operate under monopolistic competition since they all offer similar services but at the same time they are all different.

So if you like variety, then you should like monopolistic competition.

4 0
3 years ago
Janice has calculated the GDP for 2018 by using the total final goods and services times the 2018 prices of total goods and serv
zubka84 [21]

Answer:

a. Janice must adjust the total value 2018 GDP for inflation.

Explanation:

Gross domestic product is defined as the amount of goods and services produced by a country in a particular period. It is a measure of economic growth of the country.

Real GDP is calculated from GDP by adjusting for inflation of deflation. Real GDP gives a more clear picture of the economy since it considers the reality of inflationary effect on prices.

For example when prices go up and GDP is used, it will seem the country is producing more. Which is a wrong assumption.

Real GDP give a more accurate insight into a countrie's productivity.

5 0
3 years ago
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