A high operating margin implies that ______________ . The company is in a better position to increase its finance cost The company is in a better position to absorb the finance cost The company is in a better position to reduce its overheads The company is in a better position to increase its prices

A high operating margin implies that ______________ . The company is in a better position to increase its finance cost The company is in a better position to absorb the finance cost The company is in a better position to reduce its overheads The company is in a better position to increase its prices

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 41MCQ

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When a Dupont analysis reveals that a company has much higher than average asset turnover and much lower than average profit margin, what can be concluded about the companys strategy? a. It is a product differentiator. c. It has no strategy. b. It needs to concentrate on improve- d. It is a low-cost provider ing its profit margins.
Would each of the following increase, decrease, or have an indeterminant effect on a firms break-even point (unit sales)? a. The sales price increases with no change in unit costs. b. An increase in fixed costs is accompanied by a decrease in variable costs. c. Variable labor costs decline; other things are held constant.
true or false The smaller the contribution margin ratio, the larger the amount of sales required to cover a given amount of fixed expenses True False The margin of safety can be defined as the amount by which profit can decrease before losses are incurred by the company True False A big increase in sales will result in a small increase in profit if there is a low degree of operating leverage in a company True False
If a firm's marginal revenue is smaller than its marginal cost, then the firm should collect additional information before taking any action. increase output to increase profit. keep output the same decrease output to increase profit.
If company A has a higher degree of operating leverage than company B, then: company A is more profitable. company A has higher variable expenses. company A is less risky. company A's profits are more sensitive to percentage changes in sales.
Give typing answer with explanation and conclusion 5. Which of the following statements is correct? A-- All the answers are correct. B-- A more direct method of calculating the DOL is to use the following equation is DOL = (Sales - Variable Costs)/EBIT. C-- Because the amount of debt is determined by managerial choice, the business risk that a firm faces is also determined by management. D-- Fixed costs are those costs that are expected to change at the same rate as the firm’s sales. E-- If a firm’s operating costs are all variable, then any variation in sales will be less than the variation in EBIT.
Companies often use leverage to augment profits. Based on what you learned this week, please explain the following in detail: With regards to Operating Leverage, please explain why a company with HIGH Operating Leverage faces greater financial risk in a declining sales period compared to a company with LOW Operating Leverage. (HINT: The key here is the relation between fixed costs and variable costs.) What does a business's Contribution Margin represent? What does the Contribution Margin have to do with Operating Leverage?
Finance can help the entire organization by: Selling more product while keeping overall selling costs low Keeping the average cost of capital lower rather than higher Keeping the average cost of capital higher rather than lower Maintaining good cost records for operations and marketing
The amount by which a company's sales can decline before losses are incurred is called the:degree of operating leverage.margin of safety.profit loss.contribution margin ratio.
Which of the following statements about operating leverage is false? a. Operating leverage measures how operating income will be affected by changes in sales b. The degree of operating leverage is higher for companies with lower fixed costs c. Keeping all factors constant, the higher the contribution margin, the higher the operating leverage. d. All of the given answers are true. e. If the degree of operating leverage higher for a company, this means that the company is more risky than another company with low degree of operating leverage.
Firms with a high degree of operating leverage: will have a more significant shift in income as sales volume changes have lower fixed costs have low contribution margin ratio are less dependent on volume to add profits
If total fixed costs decreases while the sale price per unit and the variable costs per unit remainconstant, the:(A) contribution margin increases(B) contribution margin decreases(C) breakeven point increases(D) breakeven point decreases Which of the following would appear on both the budgeted income statement and on theschedule of expected cash disbursements for operating expenses?(A) Depreciation expense(B) Rent expense(C) Sales commission expense(D) Both B and C A business always absorbs its overheads on labour hours. In the 8th period 18,000 hours wereworked, actual overheads were $279,000 and there was$36,000 over-absorption. The overheadabsorption rate per hour was:(A) $15.50(B) $17.50(C) $18.00(D) $13.50