Your business plan for your proposed start-up firm envisions first-year revenues of $360,000, fixed costs of $120,000, and variable costs equal to one-third of revenue.
a. What are expected profits based on these expectations? (Omit the "$" 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.)
Degree of operating leverage ...................................
c. If sales are 10% below expectation, what will be the decrease in profits? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Decrease in profits ..........................%
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? What are break-even sales at this point? (Round "Shortfall" answer to 2 decimal places. Omit the "$ & %" signs in your response.)
Shortfall ......................%
Break-even sales .........................$