Given this data, complete the following sentences: . The percentage change in sa
ID: 2652327 • Letter: G
Question
Given this data, complete the following sentences: . The percentage change in sales is . . The percentage change in EBIT is . . The degree of operating leverage (DOL) at $10,680,000 is. There are several ways to use and interpret a firm?s DOL value. Consider the following statement and indicate whether it accurately reflects the meaning or an appropriate use of a firm?s DOL value. At sales of $12 million, Firm X?s DOL is 1.75, and Firm C?s DOL is 6.50. Firm C exhibits a lower level of business risk than Firm X. True or False: This statement accurately describes a firm?s DOL. True FalseExplanation / Answer
1a) Percentage change in sales =(current year sales -previous year sales)/previous year sales
=(10,680,000- 12,000,000) / 12,000,000
= -1,320,000/12,000,000
= - 11%
1b)EBIT = contribution ratio * sales -Fixed cost
contribution ratio =100 - 7.50 = 92.50%
previous year = .925(12,000,000) - 4,800,000
= 11,100,000 -4,800,000
= $ 6,300,000
current year = .925 (10,680,000) - 4,800,000
= 9,879,000-4,800,000
= 5,079,000
Percentage change in EBIT = (5,079,000 - 6,300,000) / 6,300,000
= - 1,221,000 / 6,300,000
= - 19.38%
1c)Degree of operating leverage = contribution margin / Operating income
= 11,100,000 / 6,300,000
= 1.76 times
2)The statement is false.
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