The following information is about two organisations, A and B.
| |
Organisation A
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Organisation B
|
| |
£
|
£
|
|
Fixed costs
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60,000
|
12,000
|
|
Variable costs per unit
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0.2
|
0.5
|
|
Unit selling price
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0.6
|
0.6
|
|
Expected sales levels (units)
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160,000
|
160,000
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1. Which firm has higher operating gearing?
2. What is the expected net income of both firms?
3. Would expected net income be for both firms if sales were a) 140,000 units and b) 180,000 units?
4. Which firm is facing more risk in terms of its current sales predictions?