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The sales and costs of BMCL Ltd. last year were as follows. The company is planning to understand that by what percent the profit will
The sales and costs of BMCL Ltd. last year were as follows. The company is planning to understand that by what percent the profit will change if the sales of the company increase by 20%. If the industry average for Degree of Operating Leverage(DOL) is 2, what would you advise the company about its cost structure? i.e. If the company wants to have the DOL closer to the industry average, should it attempt to increase its variable expenses or fixed expenses? Explain (Running currently at 50% capacity and manufacturing 5000 units) Sales 25,00,000 Material Cost 10,00,000 (Variable) Labour Cost 3,12,500 (Variable) Administrative Expenses 2,50,000 (Fixed 20%) Selling Expenses
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