Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Textbook Question
Chapter 3, Problem 9PB
Fire Company is a service firm with current service revenue of $900,000 and a 40% contribution margin. Its fixed costs are $200,000. Ice Company has current sales of $420,000 and a 30% contribution margin. Its fixed costs are $90,000.
- What is the margin of safety for Fire and Ice?
- Compare the margin of safety in dollars between the two companies. Which is stronger?
- Compare the margin of safety in percentage between the two companies. Now which one is stronger?
- Compute the degree of operating leverage for both companies. Which company will benefit most from a 10% increase in sales? Explain why. Illustrate your findings in an Income Statement that is increased by 10%.
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Jakarta Company is a service firm with current service revenue of $400,000 and a 40% contribution margin. Its fixed costs are $80,000. Maldives Company has current sales of $6,610,000 and a 45% contributionmargin. Its fixed costs are $1,800,000.A. What is the margin of safety for Jakarta and Maldives?B. Compare the margin of safety in dollars between the two companies. Which is stronger?C. Compare the margin of safety in percentage between the two companies. Now, which one is stronger?D. Compute the degree of operating leverage for both companies. Which company will benefit most froma 15% increase in sales? Explain why. Illustrate your findings in an Income Statement that is increased by 15%.
Explain margin of safety and why it is an important measurement for managers. Jakarta Company is a service firm with current service revenue of $400,000 and a 40% contribution margin. Its fixed costs are $80,000. Maldives Company has current sales of $6,610,000 and a 45% contribution margin. Its fixed costs are $1,800,000.
A. What is the margin of safety for Jakarta and Maldives?
B. Compare the margin of safety in dollars between the two companies. Which is stronger?
C. Compare the margin of safety in percentage between the two companies. Now, which one is stronger?
Jakarta Company is a service firm with current service revenue of $400,000 and a 30% contribution margin. Its fixed costs are $48,000. Maldives Company has current sales of $6,600,000 and a 50% contribution margin. Its fixed costs are $2,145,000.
A. What is the margin of safety for Jakarta and Maldives? If required, round final answers to one decimal place.
Chapter 3 Solutions
Principles of Accounting Volume 2
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