Problem 17-17
Your business plan for your proposed start-up firm envisions first-year revenues of $120,000, fixed costs of $30,000, and variable costs equal to one-third of
revenue.
a.What are expected profits based on these expectations? (Omit the “$” sign in your response.) Expected profit$
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.)
c.If sales are 10% below expectation, what will be the decrease in profits? (Omit the “%” sign in your response.)
d.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?
What are break-even sales at this point? (Round “Shortfall” answer to 1 decimal place. Omit the “$ & %” signs in your response.)