If a firm sustains the same level of operations in terms of sales and administrative expenses, but reduces its materials cost by $50,000 through smarter purchases, what is the profit-leverage effect on profits before taxes expressed as a dollar value?

Question

Konner Simmons

Business

3 December, 07:48

If a firm sustains the same level of operations in terms of sales and administrative expenses, but reduces its materials cost by $50,000 through smarter purchases, what is the profit-leverage effect on profits before taxes expressed as a dollar value?

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Answers (1)

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Wilkinson · Answer 1

High

Explanation:

Since in the given question the material cost is reduced by $50,000 which also reduces the production cost by $50,000 and there is a same level of sales that means the profit is increases by $50,000 by deducting the production cost and operations cost from the sales value

So, in this case, the firm would impose higher due to the income increment and at the same time the manufacturing cost and other expenses decreases