Can someone please help me answer 66 and 69 66, Williams Company has a selling p

Question

Can someone please help me answer 66 and 69 66, Williams Company has a selling price of $2.50 and a break-even sales volume of 8,000 units. Current revenue is $25,000. What is Williams' margin of safety? A. 20%. B. $2.00 5,000- s,o- C. 62.5% D. S6.255 000 E. ,03% L04-A Cmunst 67. Operating leverage is used as: A. A measure of risk arising from having a sales volume which differs from breakeven volume. B. A measure of risk arising from having less margin of safety than anticipated A measure of risk arising from having more fixed costs. A measure of risk arising from having more variable costs. None of the above. E. 04-C 68. Which of the following statements is true? A. The lower the margin of safety, the lower the risk of a loss if actual sales do not meet expectations. A good rule of thumb is that the margin of safety should be approximately 20%. The higher the margin of safety, the lower the risk of a loss if actual sales do not meet expectations. Firms that face highly variable demand conditions desire a lower margin of safety. None of the above statements are true. B. D. E. 04-C 69, assume current sales are 10,000 units, selling price is $2.50 and margin of safety is 20%. If sales increase by 5%, what is the percent change in profits before taxes? A. 40% B) 25% 25096 D. 12.5% E. 50% op tera FC 04-B TC 5-11

Explanation / Answer

68) C. ""The higher the margin of safety, the lower the risk of a loss if actual sales do not meet expectations."

=> Higher the margin of safety, lower the fixed cost and higher the profit margin. So if actual sales falls short of expectations, then there is lower risk of a loss due to higher profit margin.

69) B. 25%

=> BEP = FC / PV ratio

PV ratio = FC / BEP = 20% / 80% = 25%

Change in profits on increase in sales = PV ratio = 25%

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