1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
fredd [130]
3 years ago
5

Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable

costs of 50¢ per widget. Firm B has total fixed costs of $240,000 and variable costs of 75¢ per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. Calculate firm A's degree of operating leverage Select one: a)11.0 b)2.86 c)9.09 d)1.00.
Business
1 answer:
Dmitry_Shevchenko [17]3 years ago
4 0

Answer:

A) 11

Explanation:

The degree of operating leverage measures change in earning before interest and tax (EBIT) to change in sales.

Solution:

Formula

DOL = Percentage change in EBIT / Percentage change in sales

Percentage Change in EBIT = EBIT(1) / EBIT(2) - 1

Percentage Change in Sales = Sales(1) / Sales(2) - 1

<em>Strong economic Condition</em>

Sales = $1 Price x 1,200,000 units = $1,200,000

Variable Cost (VC) = $0.5 variable cost x 1,200,000 units = $600,000

Fixed cost (FC) = $500,000

EBIT = Sales - VC - FC

EBIT = $1,200,000 - $600,000 - $500,000

EBIT = $100,000

<em>Weak economic Condition</em>

Sales = $1 Price x 1,100,000 units = $1,100,000

Variable Cost (VC) = $0.5 variable cost x 1,100,000 units = $550,000

Fixed cost (FC) = $500,000

EBIT = Sales - VC - FC

EBIT = $1,100,000 - $550,000 - $500,000

EBIT = $50,000

Solving for DOL:

Percentage Change in EBIT = $100,000/50,000 - 1

Percentage Change in EBIT = 100%

Percentage Change in Sales = $1,200,000/1,100,000 - 1

Percentage Change in Sales = 9.09%

Now, using the above mentioned formula we can calculate DOL:

DOL = 100% / 9.09% - 1 = 11x

You might be interested in
HELP
vitfil [10]
I am pretty sure it is C
8 0
2 years ago
Read 2 more answers
Identify the type of costs that would be considered incremental cost for a decision to close stores. (You may select more than o
Gemiola [76]

The incremental costs that can be deduced include the cost for materials, overhead, and labor that are associated with the actual closing process.

Incremental cost simply means the total cost that's incurred as a result of an additional unit of product that is being produced.

It's simply calculated by analyzing the additional expenses that were spent by the company. They are the cost for materials, overhead, and labor that are associated with the actual closing process.

Learn more about costs on:

brainly.com/question/24516871

6 0
2 years ago
Fairfax Pizza borrowed 745,000 dollars to build a new restaurant for 745,000 dollars. The decision to spend 745,000 dollars on t
EastWind [94]

Answer:

Financing decision

Explanation:

Financing decision is concerned with borrowing and allocating funds for investments.

As such, the decision to borrowed 745,000 dollars and use the fund to build a new restaurant for 745,000 dollars is a financing decision.

Capital Budgeting decision-making process involves plans around any long term capital expenditures whose returns (cash inflows and outflow) are expected to be earned in more than a year.

8 0
3 years ago
The use of accelerated depreciation:____.a. discourages investment in plant and equipment. b. increases expenses and decreases c
Elena-2011 [213]

Answer:

c. initially decreases the firm's taxes

Explanation:

Accelerated depreciation provides for a higher rate of capital allowance on the assets that is New and Unused and brought in the business for use in manufacturing for the first time. This allowance then lowers for the other years. The purpose of this is to encourage  investment in plant and equipment as it initially decreases the firm's taxes.

8 0
3 years ago
the term structure of interest rates is a. the relationship among interest rates of different bonds with the same maturity. b. t
AveGali [126]

The term structure of interest rates is the relationship between interest rates or bond yields and different terms or maturities.

What is Term Structure of Interest Rates?

The yield curve, also known as the term structure of interest rates, represents the interest rates of bonds of comparable quality but different maturities. The interest rate term structure shows market participants' expectations for future interest rate adjustments as well as their evaluation of the state of monetary policy.

The relationship between interest rates or bond yields and various terms or maturities is, in essence, the term structure of interest rates. The term structure of interest rates is referred to as a yield curve when it is graphed, and it is extremely important in determining the state of an economy at any one time.

To know more about term structure of interest rates refer:

brainly.com/question/13623212

#SPJ4

5 0
1 year ago
Other questions:
  • If the government imposes a price floor on wheat at $5 and agrees to purchase any surpluses, how much will the government be for
    8·1 answer
  • Recently the corporate tax law in the U.S. changed so that firms that previously faced a marginal tax rate of close to 40% now p
    6·1 answer
  • If Tex's Manufacturing Company purchases the component externally, $20,000 of the fixed costs can be avoided. At what external p
    15·1 answer
  • Data concerning Pony Corporation's single product appear below: Per Unit Percent of Sales Selling price $ 200 100 % Variable exp
    6·1 answer
  • The following lots of a particular commodity were available for sale during the year: Beginning inventory 10 units at $60 First
    11·1 answer
  • An invoice is an example of which of the following?
    8·1 answer
  • Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store. After one year,
    7·1 answer
  • Assume that banks keep 10% of deposits as reserves. Households hold money such that the currency-deposit ratio is 80%. The money
    8·1 answer
  • Which statement(s) most directly apply to capitalism? i. there is heavy government regulation of industry. ii. individuals can s
    8·1 answer
  • For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and th
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!