In: Finance
A company has annual revenues of $5,000,000, fixed cost of $1,500,000, and variable cost of 30% of annual revenues. A.) What are the expected profits? B.) What is the degree of operating leverage? C.) If revenues are 40% below expectation, what is the percent decrease in profits?
A | $ | |
Revenue | 5,000,000 | |
Variable Cost @30% | 1,500,000 | |
Contribution | 3,500,000 | |
Fixed Cost | 1,500,000 | |
Expected Profits | 2,000,000 | |
B | Degree of Operating Leverage | Contribution/Operating Income |
3500000/2000000 | 1.75 | |
C | Revenue are 40% below | 3,000,000.0 |
Variable Cost @30% | 900,000 | |
Contribution | 2,100,000 | |
Fixed Cost | 1,500,000 | |
Expected Profits | 600,000 | |
Change in profit | 70.00% | |
(2000000-600000)/2000000 |