Question

question 25
firm x and firm y are competitors within the same industry. firm x produces its product using large amounts of direct labor as replaced direct labor with investment in machinery. the projected sales for both firms are 15% less than the sales of last year. which statement regarding projected profits is true?
(a) neither firm x nor firm y will lose profit.
(b) firm x will lose more profit than firm y.
(c) firm y will lose more profit than firm x.
(d) firm x and firm y will lose the same amount of profit.
question 26
synergy company expects the following results for the next accounting period:
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questions filter (50)

1. which of the following statements about the contribution margin ratio is true? if the contribution margin ratio increases, the variable cost ratio decreases.
2. the fixed costs that are not traceable to segments and would remain even if one of the segments was eliminated are called: common fixed expenses.
3. sales mix can be expressed in terms of either revenues or units.
4. an opportunity cost is a benefit that is forgone because an alternative opportunity was not pursued.
5. future costs that differ across alternatives and are very important for decision making are called relevant costs.

Explanation:

Firm X has replaced direct - labor with machinery, which means it has higher fixed costs and lower variable costs. When sales decrease for both firms by the same percentage (15%), the firm with higher fixed - cost structure (Firm X) will experience a larger decline in profit due to the nature of cost - volume - profit relationships. A higher proportion of fixed costs means that a reduction in sales has a more significant impact on profit as the contribution margin has to cover a larger amount of fixed expenses first.

Answer:

B. Firm X will lose more profit than Firm Y.