A company rsquo s margin of safety can be stated in units. as a percentage of sa
ID: 2477228 • Letter: A
Question
A company rsquo s margin of safety can be stated in units. as a percentage of sales. in dollars. any of the above. All else being expat, a company with a low operating leverage will have relatively high fixed costs. relatively high risk. relatively high variable costs. relatively high contribution margin ratio. To find a firm rsquo s operating leverage factor at a given level of sales, you divide tile contribution margin by fixed expenses. divide variable expenses by fixed expenses. divide the contribution margin by operating income. divide relatively operating income by contribution margin. The lowest possible operating leverage factor for a company is +1. zero. -1. somewhere between zero and +1. Fosnight Enterprises prepared the following sales budget: Month Budgeted Sales March $6,000 April $13,000 May $12,000 June $14,000 The expected gross profit rate is 30% and the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month s cost of goods sold. What is the desired beginning inventory on June 1? $9,800 $1,680 $840 $1,960Explanation / Answer
23) A company’s margin of safety can be expressed in units, % of sales ,$ values.
So correct option is D.
24) A company with low operating leverage has high variable cost.
So option C is correct.
25)Operating leverage is calculated by dividing Contribution Margin by Operating Income.
So option is C.
26) The lowest possible operating leverage factor can be +1 when there is no fixed cost.
So option is A.
27.
Detaiils
March
April
May
June
Sales
6,000
13,000
12,000
14,000
Required Production @70% COGS
4,200
9,100
8,400
9,800
Add Required closing stock
1,820
1,680
1,960
-
Less Closing stock in Hand
10,000
1,820
1,680
1,960
So required beginning inventory in June =$1960
Option D is correct.
Detaiils
March
April
May
June
Sales
6,000
13,000
12,000
14,000
Required Production @70% COGS
4,200
9,100
8,400
9,800
Add Required closing stock
1,820
1,680
1,960
-
Less Closing stock in Hand
10,000
1,820
1,680
1,960
So required beginning inventory in June =$1960
Option D is correct.
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