Question

2. Operating leverage The following table represents forecasted sales information for Fabregas Co. Forecasted Operations Sales with 40.00% Increase Unit Change 200.00 80.00 Sales in units (millions) Sales revenues Variable cost of goods sold $4,000.00 (1,000.00) 280.00 $5,600.00 (1,400.00) $1,600.00 (400.00) Gross profit Fixed operating costs $3,000.00 (180.00) $4,200.00 (180.00) $1,200.00 (0.00) Net operating income $2,820.00 $4,020.00 $1,200.00 By how much will net operating income increase for the given increase in sales and associated expenses? (Round your answer to the nearest whole percent.) Using the percent change in net operating income computed in the previous section, calculate the degree of operating leverage for the projected change of 40.00% from the original forecast. Assuming an identical cost structure, compared to a company with a degree of operating leverage 0.97, how risky is Fabregas Co.?

Answer 1

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- 2x Find & Select O ACCOUNTS latest - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Σ AutoSum : A Calibri 11 A A = = = V Wrap Text General Ea Copy Fill 2 Paste B I U D Format Painter A E Merge & Center $ - % Conditional Format 8. Cell Insert Delete Format Sort & Formatting as Table Styles Clear Filter Clipboard Font Alignment Number Styles Cells Editing H551 Ε н M N 536 537 ANSWER 1 %CHANGE IN NET OPERATING INCOME = CHANGE IN INCOME/BASE NET INCOME 538 %CHANGE IN NET OPERATING INCOME = 1200/2820 539 %CHANGE IN NET OPERATING INCOME = 42.55% 540 %CHANGE IN NET OPERATING INCOME = 43% 541 542 ANSWER 2 DEGREE OF OPERATING LEVERAGE = %CHANGE IN NET OPERATING INCOME/%CHANGE IN SALES 543 DEGREE OF OPERATING LEVERAGE = 42.55%/40% 544 DEGREE OF OPERATING LEVERAGE = 1.0638 545 DEGREE OF OPERATING LEVERAGE = 1.06 546 547 ANSWER 3 MORE RISKY 548 HIGHER THE OPERATING LEVERAGE, HIGHER THE RISK 549 550 551 552 553 554 FIFO CASH BUDGET ferences budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont DIFF ANALYSIS BO ovel < 130% Rea _ 0 + 2. 9 * * O ENG 28-11-2019