Sun Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.?Sales (5,000 units)$250,000?Variable expenses 162,500?Contribution margin87,500?Fixed expenses 71,750?Net operating income $15,750Required:a. What is the margin of safety in dollars?b. What is the degree of operating leverage?
What will be an ideal response?
a. CM ratio = Contribution margin ÷ Sales = $87,500 ÷ $250,000 = 35%
Dollar sales to break even = Fixed expenses ÷ CM ratio = $71,750 ÷ 35% = $205,000
Margin of safety in dollars = Total budgeted (or actual) sales - Break-even sales
= $250,000 ? $205,000 = $45,000
b. Degree of operating leverage = Contribution margin ÷ Net operating income
= $87,500 ÷ $15,750 = 5.6
You might also like to view...
Franchising now accounts for about a third of all retail sales.
Answer the following statement true (T) or false (F)
All of the following factors support the proposition that dividend policy matters EXCEPT
A) perfect capital markets. B) information asymmetry exists between shareholders and managers. C) investors desire to minimize and defer taxes, and capital gains get preferential tax treatment over dividend income. D) flotation costs significantly increase the cost of new common stock compared to retained earnings.
Jacob is a renowned landscape designer, and his clients feel that he can bring to life a dull yard with minimal cost and effort. Before starting a project, Jacob always describes the changes he is going to make so the client gets a feel of what the final changes will look like. In doing so, Jacob reflects his strong ability not only to mix and match different designs to create a completely new image, but also to help his clients imagine it beforehand. Jacob has high ability in the area of
A. coordination. B. mathematical reasoning. C. visualization. D. response orientation. E. perceptual speed.
What are some uses for index futures contracts?
What will be an ideal response?