Your business plan for your proposed start-up firm envisions first-year revenues of $120,000, fixed costs of $61,000, and variable costs equal to one-third of revenue.
a. What are expected profits based on these expectations? (Round your answer to nearest whole number.)
Answer is complete and correct.
Expected profit
19,000
b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits? (Round your answer to 2 decimal places.)
Answer is complete and correct.
Degree of operating leverage
4.21
c. If sales are 10% below expectation, what will be the percentage decrease in profits? (Round your answer to nearest whole number)
Answer is complete and correct.
Decrease in profits
42%
e. Based on the DOL, what is the largest percentage shortfall in sales relative to original expectations that the firm can sustain before profits turn negative? (Round your answer to 1 decimal place.)
Answer is complete but not entirely correct.
Shortfall
10.0%
f. What are break-even sales at this point? (Round your answer to nearest whole number)
Answer is complete and correct.
Broak-even sales
91,500
