38 NUBD Corporation is operationally, a highly leveraged company, that is, it has high fixed costsand low variable costs. As such, small changes in sales volume result in *O Proportionate change in profitO Large changes in profitO Negligible change in profitO No change in profit

Higher the leverage, higher the changes in profit. As the sales increase/decrease, fixed cost…

Answered: NUBD Corporation is operationally, a…

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 44MCQ: When a Dupont analysis reveals that a company has much higher than average asset turnover and much...

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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.
Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firms production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firms gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firms gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?
If the percentage change in operating income resulting from a given percentagechange in sales is higher than the percentage change in sales itself, thena. an increase in the selling price would not alter the contribution marginper unit.b. variable costs per unit have increased.c. variable costs have decreased in total.d. the company has operating leverage.e. the company has no fixed costs.
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 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.
You are analyzing Becker Corporation and Newton Corporation and have concluded that Becker has a higher operating leverage factor than Newton. Which one of the following choices correctly depicts (1) the relative use of fixed costs (as opposed to variable costs) for the two companies and (2) the percentage change in income caused by a change in sales? (1) Lower for Becker (2)Lower for Becker (1) Greater for Becker (2) Greater for Becker (1) Greater for Becker (2) Equal for both (1) Lower for Becker (2) Greater for Becker (1) Greater for Becker (2) Lower for Becker
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.
XYZ Company wishes to gain more market share . In order to do that , the company is planning to double the current production and sales quantity . However , due to increase in production capacity , the fixed cost is also expected to double . Assuming that the selling price per unit and the variable cost per unit remain unchanged , what would be the effect on profit ? a. Cannot be determined using the information in the question . b. None of the given answers c. Profit would increase d. Profit would decrease e. Profit would remain unchanged
Is my explanation correct? When the shit in sales toward the lower contribution margin. In the sales mix, if the shift in sales to a product that has a low contribution margin ratio, the break-even point will increase. In this case, the company will generate more sales; hence, the net operating income will increase. Also, the contribution margin ratio will increase. Moreover, the degree of operating leverage will increase, too. Please explain (True or False) in detail.
In competitive markets economic profit becomes zero in the long-run. However, it is also possible for some firms to earn a greater accounting profit and to enjoy a higher producer surplus than other firms. How is it possible? Explain in detail. explain it examples
If XYZ Company sells unit outputs that exceed the breakeven point, a. there will be an increase in total fixed costs b. total sales revenue will exceed total variable costs total sales revenue will exceed total fixed costs dthere will be a profit e None of the given answers
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

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NUBD Corporation is operationally, a highly leveraged company, that is, it has high fixed costs and low variable costs. As such, small changes in sales volume result in * O Proportionate change in profit O Large changes in profit O Negligible change in profit O No change in profit