All other things the same, in periods of increasing sales, net operating income will tend to...

All other things the same, in periods of increasing sales, net operating income will tend to increase more rapidly in a company with high fixed costs and low variable costs than in a company with high variable costs and low fixed costs.

Expert Solution

True

The companies having high fixed cost will show high percentage of increase in income with change in sales in comparison to companies having high variable cost. This is also explained in the given below example where Company A shows high increase in income in comparison to company B simply because company A has higher fixed cost component in its cost structure.

		Company A	Company B
A	Sales	$ 5,00,000.00	$ 5,00,000.00
B	Variable cost	$ 1,00,000.00	$ 4,00,000.00
C=A-B	Contribution margin	$ 4,00,000.00	$ 1,00,000.00
D	Fixed cost	$ 2,50,000.00	$ 50,000.00
E=C-D	Net Income	$ 1,50,000.00	$ 50,000.00
F=C/E	Degree of operating leverage	2.67	2.00
G	% Increase in sales	10%	10%
H=F x G	% Increase in net income	27%	20%

This takes place because fixed cost is same at all levels and when sales increase the fixed cost do not change which gioves a higher contribution margin than a high variable cost company.

ekkarill92 answered 9 months ago

Increasing net operating asset turnover requires some combination of increasing sales and/or decreasing net operating assets....

Increasing net operating asset turnover requires some combination of increasing sales and/or decreasing net operating assets. For the latter, many companies consider ways to reduce their investment in working capital (current assets less current liabilities). This can be accomplished by reducing the level of accounts receivable and inventories, or by increasing the level of accounts payable. Required a. Develop a list of suggested actions that you, as a manager, could undertake to achieve these three objectives. b. Describe the marketing...

is net sales= net revenue? term sales and revenue are same? is Net sales and cost...

is net sales= net revenue? term sales and revenue are same? is Net sales and cost of goods sold same?

The Alpha Company had sales of $2,000,000, net operating income of $320,000 and average operating assets...

The Alpha Company had sales of $2,000,000, net operating income of $320,000 and average operating assets of $575,000. What was the return on investment? Round your percentage answer to the nearest whole percent. Answer:____________ ABC Industries is evaluating the amount of time between when a customer places an order and when the order is shipped. For last year, the following data was reported: Inspection time 0.3 days Wait time 7.0 days Process time 2.6 days Move time ...

If net cash flows from operating activities were $187,000, net income were $50,000, and net sales...

If net cash flows from operating activities were $187,000, net income were $50,000, and net sales were $600,000, the cash flow yield would equal (Round to on decimal place) a.$137,000 b.$237,000 c.3.7 times d. $413,000

3a. Resilient Company had sales of $100,000, operating income of $15,000 and net income of $10,000...

3a. Resilient Company had sales of $100,000, operating income of $15,000 and net income of $10,000 in 2017. Total assets amounted to 180,000 at the beginning of 2017 and 220,000 at the end of the year. Total stockholders’ equity amounted to $45,000 at the beginning of 2017 and $55,000 at the end of 2017. Using the DuPont formula, calculate the return on investment for Resilient in 2017. Calculate return of stockholders’ equity for 2017. 3b. Volume Company sold for $950,000...

A firm has sales of $10, 000,000 in 2018, and operating income of $1,200,000 and net...

A firm has sales of $10, 000,000 in 2018, and operating income of $1,200,000 and net income of $650,000. The firm has total equity at year end 2017 of $4,000,000, total asset of $7,000,000. It also paid out $195,000 dividend in 2018. Calculate its equity multiplier. Use the 3-factor DuPont Identity to calculate its ROE. What’s its retention ratio? What’s its sustainable growth rate?

Other things the same, which of the following is correct? a. A decrease in the price...

Other things the same, which of the following is correct? a. A decrease in the price level causes the dollar to appreciate. Aggregate demand shifts right. b. A decrease in the price level causes the dollar to depreciate. Aggregate demand shifts right. c. If speculators lose confidence in the American economy, the dollar appreciates. Aggregate demand shifts right. d. If speculators lose confidence in the American economy, the dollar depreciates. Aggregate demand shifts right.

calculate net income if sales are 168,762, operating costs 58,402, deprecriation is 12,326, and the firm...

calculate net income if sales are 168,762, operating costs 58,402, deprecriation is 12,326, and the firm also borrowed 10,000 at 7% interest and has a tax rate of .35 ?

Net operating income for the Midal Company for 2018 was: Sales (45,000 units) $450,000 Cost of...

Net operating income for the Midal Company for 2018 was: Sales (45,000 units) $450,000 Cost of goods sold: Direct materials $ 90,000 Direct labor 67,500 Variable overhead 27,000 Fixed overhead 45,000 $229,500 Gross margin $220,500 Selling and administrative expenses: Fixed $140,500 variable 27,000 167,500 Net operating income $ 53,000 To prepare the budget for 2019, sales are forecasted at a 20% volume increase with no change in sales price or variable costs per unit. Fixed overhead...

A firm's financial statements showed sales of 400,000 net income of 50,000 operating expense of 80,000...

A firm's financial statements showed sales of 400,000 net income of 50,000 operating expense of 80,000 accounts payable of 160,000 and a cost of goods sold of 200,000. If the company's tax rate is 28% and the only missing expense is interest, what is the company's interest expense?

Question