Operating Leverage and Risk - Assignment Example

Accounting Paper The organization d as Biolea is a family-owned business that specialized in the manufacturing of olive oil that is organic in nature and they produce olive oil with the techniques of millstones and olive press. Fixed cost includes utility payments and payments made to permanent workers for their services. The variable cost that the company experiences include oil transportation and oil storage cost that may change with the changes in productivity. The mixed cost of the business will be the contractual workers and the utility payments that the company will experience during peak season.

The company Gulf Craft is engaged in the production and export of sea-based vessels such as ships and speed boards. Their fixed cost includes rent for the factory and building and salaries paid to staff members who take care of the maintenance of their buildings. Their variable cost comprises materials used for manufacturing boats such as cloth and riggings. Their mixed costs include the cost of transportation that varies depending on the number of miles that the product needs to be moved and the cost of commission that is paid to middlemen for helping the company sell its products.

The company Evian is involved in the production and sale of bottled water. Their fixed cost includes the salaries paid to those who maintain the bottling plants as well as salaries paid to individuals working in the finance department. Variable cost includes the cost of obtaining or producing more bottles and labels for these bottles with changes in production. Mixed cost includes minimum plus extra money paid for utilization of electricity and cost of commissions paid to employees who are paid a basic minimum salary and commission for their sales.

The company named Ircon International Limited indulged in the activity of engineering as well as constructing the infrastructure and the company specializes in developing transport-based infrastructure. The fixed cost of the company includes salaries paid to permanent employees such as employees of the human resource department and rents that the company pays to the owner of its offices. The variable costs include the cost of raw materials used in construction such as steel and concrete. The mixed costs include the salaries that the company pays to consultants if consultants are paid on the basis of minimum wage plus consultancy fees paid per hour.

The second mixed cost may include the equipment is obtains on a rental basis for construction if the equipment owners are paid on the basis of a basic fee as well as a fee paid in compliance with the amount of usage. Paper 2 This article was authored by Lee et al. during the period of 2014 and this article is based on research that was conducted in order to identify the link between an organization’s risk as well as operating leverage (Lee et al., 2014). More specifically, the study was conducted to identify whether a positive or a negative link exists between an organization’s degree of operating leverage and their overall as well as systemic risk.

In order to conduct this study the researchers used the airline industry. They even aimed at identifying the connection between the organization's leverage of operations as well as their returns and even to identify the relationship between the organization's leverage of operations and the ratio of the organization’s book values as well as the market value. The researchers were able to identify that there was a negative link between an organization's average variable cost (AVC) and the organization's complete risk and there is a major connection between an organization’s leverage of operations as well as their returns and leverage of operations and the ratio of the organization’s book values as well as the market value.

The authors suggest that due to such a positive relationship, it is very essential for managers to properly manage their operating leverage.