Which of the following statements is most likely true regarding the competitive-parity method?
A) This method involves starting with total revenues, deducting operating expenses and capital outlays, and then devoting some portion of the remaining funds to advertising.
B) It is based on the availability of funds rather than on opportunities.
C) It wrongly views sales as the cause of promotion rather than as the result.
D) In this method, promotion budgets are set to match competitors' outlays.
E) This method involves setting the promotion budget at a certain percentage of current or forecasted sales.
D
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Rocca Hats, Inc has two product lines—batting helmets and football helmets
The income statement data for the most recent year is as follows: Total Batting Helmets Football Helmets Sales revenue $940,000 $600,000 $340,000 Variable costs (430,000 ) (150,000 ) (280,000 ) Contribution margin $510,000 $450,000 $60,000 Fixed costs (180,000 ) (90,000 ) (90,000 ) Operating income (loss) $330,000 $360,000 $(30,000 ) Assuming the football helmet line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the football helmet line is used to double the production of batting helmets, operating income will be ________. A) $450,000 B) $180,000 C) $720,000 D) $360,000
A firm has EBIT of $375,000, interest expense of $75,000, preferred dividends of $6,000 and a tax rate of 40 percent. The firm's degree of financial leverage at a base EBIT level of $375,000 is ________
A) 0.97 B) 1.29 C) 1.27 D) 1.09