Operating Profits

Related BrainMass Solutions

• In 1993 Izzo made operating income of $ 12,000 on revenue of $ 1 million from selling 75, 000 straps. In 1994 Izzo expected to sell 92,000 straps for $1.7 million. 1. Suppose the variables costs per strap are $ 10. Compute total fixed and total variable costs for 1993. 2. Suppose the cost behavior in 1994 was the same as in 1993. Estimate Izzo's operating income for 1994 (a) with sales at the predicted 92,00 straps, (b) with unit sales 10% above the predicted level, and (c) with unit sales 10% below the predicted level. 3. Explain why the predicted 1994 operating income was so much greater than the 1993 operating income.

  Operating profits = Sales revenue - Fixed cost - variable cost a) Operating Profits = 1700000-238000-10*92000 =542000 b) Operating Profits = 1700000*1.1-238000-10*92000*1.1 =620000 b) Operating Profits = 1700000*0.9-238000-10*92000*0.9 =464000 3

• High of Profit/Low Operating Income

  198596 High of Profit/Low Operating Income Provide an example from the Internet that demonstrates a situation in which a company's net profits looked good in the statements, but the gross or operating profits presented a different picture.

• Cmmon size income statement

  2.0 Total operating expense 15.5 13.9 Operating profits 10.0 16.1 Interest expense 1.4 1.0 Net profits before taxes 8.6 15.1 Taxes 2.4 6.0 Net profits after taxes 5.2 9.1 Income Statement, Dreamscape, Inc.

• Why do managers put emphasis on controlling fixed costs?

  It shows how profits change when sales change and how the degree of operating leverage shows you how much profits will change for each percent change in sales.

• Profits larger or smaller if firm increased operating leverage

  263943 Profits larger or smaller if firm increased operating leverage Changes in sales can cause changes in profits. Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage?

• Cost structure and profitability

  For every 1% shift in sales, the profits will shift by the degree of operating leverage. So, if sales are down 1%, Co A's profits will go down by 8% and Co B's profits will go down by 3%.

• Home Depot: Operating Leverage, Margin of Safety, and Cost

  .$60 Operating profits............$10 This firm has an operating leverage of 7 - about the same as Home Depot (contribution margin/operating profits -- > $70/$10 = 7).

• Calculating operating leverage of a project

  If sales increase by 5 percent, what will be the increase in pretax profits? b. What is the degree of operating leverage of this project? c. Confirm that the percentage change in profits equals DOL times the percentage change in sales.

• Degree of Operating Leverage

  The reason is that profits are already high and so increasing the sales, results is a lower percentage change in profits.