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Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firm’s production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firm’s gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firm’s gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?
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Financial Reporting, Financial Statement Analysis and Valuation
- A company produces and sells a product. The company has found that the costto produce x units of the product is given by C(x) = 50x + 200 (in dollars),and the revenue from selling x units is given by R(x) = 100x - x? (in dollars).What is the number of units the company should produce and sell to maximize profitarrow_forwardAssume that you are the president of your company and paid a year-end bonus according to the amount of net income earned during the year. When prices are rising, would you choose a FIFO or weighted average cost flow assumption? Explain, using an example to support your answer. Would your choice be the same if prices were falling? I need an example with net income for weighted averagearrow_forwardGiven the following, solve the independent questions using the CVP analysis. Selling Price = 30 Variable Cost per Unit = 20 Total Fixed Cost = 60,000REQUIRED: 1 Find the following functions: • Total Revenue = [TR] • Total Variable Cost = [TVC] • Total Cost = [TC] • Total Profit = [TP] 2 What is the volume of production for the business firm not to incur any profit nor loss? 3 At zero quantity of production, how much is the total cost? 4 What is the volume of production if the company wants to earn 100,000 profit?arrow_forward
- You are an industry analyst that specializes in an industry where the market inverse demand is P = 100 - 2Q. The external marginal cost of producing the product is MCExternal = 8Q, and the internal cost is MCInternal = 18Q.Instructions: Enter your responses rounded to the nearest two decimal places.a. What is the socially efficient level of output? unitsb. Given these costs and market demand, how much output would a competitive industry produce? unitsc. Given these costs and market demand, how much output would a monopolist produce? unitsd. Which of the following are actions the government could take to induce firms in this industry to produce the socially efficient level of output.Instructions: For correct answers place a check mark. check all that apply Nonrival consumptionunanswered Pollution taxesunanswered Pollution permitsunansweredarrow_forwardyou are the owner of a firm, and your firm is experiencing "economies of scale" in production. If this is the case, will the average total cost increase, decrease or remain unchanged as you increase the level of output?arrow_forwardCVP Analysis using a chart: The cost-volume-profit chart for Byron Manufacturing is shown. Use the graph to complete the sentences given below. SALES AND COSTS (Dollars) 20000 Sales 15000 Total Costs 10000 5000 100 200 300 400 500 600 700 800 900 1000 UNITS OF SALES Byron Manufacturing reaches its break-even level of activity when it sells 500 -v units and generates $12,000 v in revenue, because at this level of activity the firm's revenue equals -v its total cost. In addition, you can determine from the chart that Byron Manufacturing's fixed costs are $6,000 -v and its price per unit is $24.00 V and variable cost per unit is $12.00 If fixed costs increase, what will happen to the break-even point? The break-even point will increase. If the price per unit decreases, what will happen to the break-even point? The break-even point will increase.arrow_forward
- What are the answers for the following? Construct a cost-volume-profit chart on your own paper. What is the break-even sales? What is the expected margin of safety in dollars and as a percentage of sales? Determine the operating leverage. Round to one decimal place.arrow_forwardA firm presently has total sales of P100,000. If its sales rise, its A. net income based on variable costing will go up more than its net income based on absorption costing. B. net income based on absorption costing will go up more than its net income based on variable costing. C. fixed costs will also rise. D. per unit variable costs will risearrow_forwardd. The anticipated levels of sales are the following: Year Unit Sales 1 2,900 2 3,900 4,900 5,900 3 4 If management selects the scale of production with higher fixed cost, what can it expect in years 1 and 2? Round your answers to the nearest dollar. Earnings in year 1: $ Earnings in year 2: $ If the firm selects the scale with higher fixed costs, its earnings in year 1 will be lower than earnings in year 2. If sales reach only 3,900 a year, was the correct scale of operation chosen? Be sure to consider all the factors. The first scale of operation Hide Feedback Partially Correct Icon Key should have been preferred. Check My Work Question 2 of 5 ▸ Save Submit Assignment for Gradingarrow_forward
- A firm presently has total sales of P100,000. If its sales rise, its fixed costs will also rise. net income based on absorption costing will go up more than its net income based on variable costing. per unit variable costs will rise. net income based on variable costing will go up more than its net income based on absorption costing.arrow_forwarda. Given the following graphs, calculate the total fixed costs, variable costs per unit, andsales price for Firm A. Firm B’s fixed costs are $120,000, its variable costs per unit are$4, and its sales price is $8 per unit.b. Which firm has the higher operating leverage at any given level of sales? Explain.c. At what sales level, in units, do both firms earn the same operating profit?arrow_forwardCompanies often use leverage to augment profits. Based on what you learned this week, please explain the following in detail: With regards to Operating Leverage, please explain why a company with HIGH Operating Leverage faces greater financial risk in a declining sales period compared to a company with LOW Operating Leverage. (HINT: The key here is the relation between fixed costs and variable costs.) What does a business's Contribution Margin represent? What does the Contribution Margin have to do with Operating Leverage?arrow_forward
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