Do you want BuboFlash to help you learning these things? Or do you want to add or correct something? Click here to log in or create user.


  • Presentation
  • Question
  • Answer

Tags
#cfa #cfa-level-1 #economics #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
Question

A business has revenue of $2 million and total costs of $2.5 million, which are or can be broken down into total fixed cost of $1 million and total variable cost of $1.5 million.

The net loss on the firm’s income statement is reported as $500,000 (ignoring tax implications).

  1. Assume the same business scenario except that revenue is now $1.3 million, which creates a net loss of $1.2 million. What decision should the firm make regarding operations in this case?

Answer
The firm would minimize loss at $1 million of total fixed cost by shutting down compared with continuing to do business where the loss is $1.2 million.

Shareholders will save $200,000 in equity value by pursuing this option. Unquestionably, the business will have a rather short life expectancy if this loss situation were to continue.

Tags
#cfa #cfa-level-1 #economics #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
Question

A business has revenue of $2 million and total costs of $2.5 million, which are or can be broken down into total fixed cost of $1 million and total variable cost of $1.5 million.

The net loss on the firm’s income statement is reported as $500,000 (ignoring tax implications).

  1. Assume the same business scenario except that revenue is now $1.3 million, which creates a net loss of $1.2 million. What decision should the firm make regarding operations in this case?

Answer
?

Tags
#cfa #cfa-level-1 #economics #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
Question

A business has revenue of $2 million and total costs of $2.5 million, which are or can be broken down into total fixed cost of $1 million and total variable cost of $1.5 million.

The net loss on the firm’s income statement is reported as $500,000 (ignoring tax implications).

  1. Assume the same business scenario except that revenue is now $1.3 million, which creates a net loss of $1.2 million. What decision should the firm make regarding operations in this case?

Answer
The firm would minimize loss at $1 million of total fixed cost by shutting down compared with continuing to do business where the loss is $1.2 million.

Shareholders will save $200,000 in equity value by pursuing this option. Unquestionably, the business will have a rather short life expectancy if this loss situation were to continue.
If you want to change selection, open document below and click on "Move attachment"

Shutdown Analysis
For the most recent financial reporting period, a business domiciled in Ecuador (which recognizes the US dollar as an official currency) has revenue of $2 million and total costs of $2.5 million, which are or can be broken down into total fixed cost of $1 million and total variable cost of $1.5 million. The net loss on the firm’s income statement is reported as $500,000 (ignoring tax implications). In prior periods, the firm had reported profits on its operations. What decision should the firm make regarding operations over the short term? What decision should the firm make regarding operations over the long term? Assume the same business scenario except that revenue is now $1.3 million, which creates a net loss of $1.2 million. What decision should the firm make regarding operations in this case? Solution to 1: In the short run, the firm is able to cover all of its total variable cost but only half of its $1 million in total fixed cost. I

Summary

statusnot learnedmeasured difficulty37% [default]last interval [days]               
repetition number in this series0memorised on               scheduled repetition               
scheduled repetition interval               last repetition or drill

Details

No repetitions

Discussion

Do you want to join discussion? Click here to log in or create user.