Ask AI on The Internet
Question: The Ticktock Watch Company manufactures a line of ladies watches which are sold through discount houses. Each watch is sold for P1,500; the fixed costs are P3,600,000 for 30,000 watches or less; variable cost is P900 per watch. Required: Answer with complete solutions a) What is Ticktock's degree of operating leverage at sales of 12,000 watches? b) If Ticktock's sales will increase by 5%, what would be the percentage of change in profits?
a) Degree of Operating Leverage = Contribution Margin / Net Income Total Sales = 12,000 x 1,500 = 18,000,000 Total Variable Cost = 12,000 x 900 = 10,800,000 Contribution Margin = 18,000,000 - 10,800,000 = 7,200,000 Net Income = 7,200,000 - 3,600,000 = 3,600,000 Degree of Operating Leverage = 7,200,000 / 3,600,000 = 2 b) If sales will increase by 5%, total sales will increase by 5% from 18,000,000 to 18,900,000. Total Variable Cost = 18,900,000 x 900 = 17,010,000 Contribution Margin = 18,900,000 - 17,010,000 = 1,890,000 Net Income = 1,890,000 - 3,600,000 = -1,710,000 Percentage Change in Profits = -1,710,000 / 3,600,000 x 100 = -47.5%
Jan. 23, 2023, 7:55 a.m.
A new large language model has been made available since this question was asked.
To generate an updated answer from the new model, click the button below.
Think your answer is better than the AI's? Post it below.
Question Tags
If you want your question answered by an AI, click here.
Comment Section