Question
Hailey, Beach Gear's CEO, is interested in doing some ratio analysis. She wants to compare contribution margin as a percentage of sales for the past
Hailey, Beach Gear's CEO, is interested in doing some ratio analysis. She wants to compare contribution margin as a percentage of sales for the past two years with the projections for this year. She also wants to do the same comparison with the margin of safety percentage. Reza estimates that this year's expense totals will be a half fixed and half variable. He believes that fixed expenses have been relatively constant for the last few years. In addition to the numbers, Reza would also like some explanations on what they are implying. He has heard of something called "discretionary fixed cost" and the concept doesn't make sense to him, especially since he views fixed costs as expenses which can't be avoided. He wonders if it is a good idea to only have discretionary fixed costs in Beach Gear as opposed to other types of fixed costs
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