(a) Concept introduction: Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity. When the two businesses are compared, the business with highest sale, highest gross profit margin and lower variable cost is more beneficial. Operating leverage = contribution margin profit To compute: The operating leverage of R and A.

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Answer 1

Question

Chapter 6, Problem 15E

To determine

(a)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

When the two businesses are compared, the business with highest sale, highest gross profit margin and lower variable cost is more beneficial.

Operating leverage =contribution marginprofit

To compute:

The operating leverage of R and A.

To determine

(b)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

To compute:

The reason that the companies with the same total sales and net operating income can have different degrees of operating leverage.

To determine

(c)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

Both companies’ vulnerability to market fluctuations.

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Students have asked these similar questions

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.

Below is a list of various metrics used to measure performance. For each metric, identify the correct balanced scorecard perspective with which the metric is associated. Metric Balanced Scorecard Perspective Average stock price Economic value added Employee turnover rates Manufacturing cycle time Market share Number of days from product launch to shelf Number of defects Number of new patent applications Percentage of repeat customers Percentage decrease in operating costs Percentage of sales generated by new products Research and development spending as a percentage of net revenues options: Customer Financial Internal Business Learning and Growth

Using the data in the following table for a number of firms in the same industry, dothe following:•a. Compute the total asset turnover, the net profit margin, the equity multiplier, andthe return on equity for each firm.b. Evaluate each firm’s performance by comparing the firms with one another.Which firm or firms appear to be having problems? What corrective actionwould you suggest the poorer performing firms take? Finally, what additional data would you want to have on hand when conducting youranalyses?Firm (in million Dollars A B C D Sales $20 $10 $15 $25 Net Income after sales 3 0.5 2.25 3 Total Assets 15 7.5 15 24 Stockholders’ Equity 10 5 14 10

Answer 2

Question

Chapter 6, Problem 15E

To determine

(a)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

When the two businesses are compared, the business with highest sale, highest gross profit margin and lower variable cost is more beneficial.

Operating leverage =contribution marginprofit

To compute:

The operating leverage of R and A.

To determine

(b)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

To compute:

The reason that the companies with the same total sales and net operating income can have different degrees of operating leverage.

To determine

(c)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

Both companies’ vulnerability to market fluctuations.

Expert Solution & Answer

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See solution

Answer 3

Question

Chapter 6, Problem 15E

To determine

(a)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

When the two businesses are compared, the business with highest sale, highest gross profit margin and lower variable cost is more beneficial.

Operating leverage =contribution marginprofit

To compute:

The operating leverage of R and A.

To determine

(b)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

To compute:

The reason that the companies with the same total sales and net operating income can have different degrees of operating leverage.

To determine

(c)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

Both companies’ vulnerability to market fluctuations.

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 6, Problem 15E

To determine

(a)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

When the two businesses are compared, the business with highest sale, highest gross profit margin and lower variable cost is more beneficial.

Operating leverage =contribution marginprofit

To compute:

The operating leverage of R and A.

To determine

(b)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

To compute:

The reason that the companies with the same total sales and net operating income can have different degrees of operating leverage.

To determine

(c)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

Both companies’ vulnerability to market fluctuations.

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 5

Chapter 6, Problem 15E

To determine

(a)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

When the two businesses are compared, the business with highest sale, highest gross profit margin and lower variable cost is more beneficial.

Operating leverage =contribution marginprofit

To compute:

The operating leverage of R and A.

To determine

(b)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

To compute:

The reason that the companies with the same total sales and net operating income can have different degrees of operating leverage.

To determine

(c)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

Both companies’ vulnerability to market fluctuations.

Answer 6

Chapter 6, Problem 15E

To determine

(a)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

When the two businesses are compared, the business with highest sale, highest gross profit margin and lower variable cost is more beneficial.

Operating leverage =contribution marginprofit

To compute:

The operating leverage of R and A.

Answer 7

Chapter 6, Problem 15E

To determine

(a)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

When the two businesses are compared, the business with highest sale, highest gross profit margin and lower variable cost is more beneficial.

Operating leverage =contribution marginprofit

To compute:

The operating leverage of R and A.

Answer 8

To determine

(b)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

To compute:

The reason that the companies with the same total sales and net operating income can have different degrees of operating leverage.

Answer 9

To determine

(b)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

To compute:

The reason that the companies with the same total sales and net operating income can have different degrees of operating leverage.

Answer 10

To determine

(c)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

Both companies’ vulnerability to market fluctuations.

Answer 11

To determine

(c)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

Both companies’ vulnerability to market fluctuations.

Answer 12

Expert Solution & Answer

Answer 13

Expert Solution & Answer

Answer 14

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Answer 15

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Solution Summary: The author explains that operating leverage is a cost-accounting formula that shows the percentage or degree increase in the operating income if the company increases its revenue or sale quantity.

(c)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

Both companies’ vulnerability to market fluctuations.

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Chapter 6 Solutions

Solution Summary: The author explains that operating leverage is a cost-accounting formula that shows the percentage or degree increase in the operating income if the company increases its revenue or sale quantity.

(c) Concept introduction: Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity. Both companies’ vulnerability to market fluctuations.

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Chapter 6 Solutions

(c)

Concept introduction:

Operating leverage is a cost-accounting formula which shows the percentage or degree increase in the operating income if a company increases its revenue or sale quantity.

Both companies’ vulnerability to market fluctuations.