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For Scenario 1, Lily Company should choose 4%. The company could afford to have a higher expense valuation for the current year since earnings were much higher than expected. This would allow the company to record lower expenses for the upcoming years that may not be as strong.
For Scenario 2, Lily Company should choose 1%. The company had lower than expected earnings and would benefit from having lower expenses recorded. This would allow for higher expenses to be recorded in the future when the company foresees stronger earnings.
There are risks if Lily Company only makes their decision based off of this information. There is no way to completely predict how future years financials will turn out. If a company has another down year, such as in scenario 2, higher expenses would only magnify their struggles.
Please comment on post
For Scenario 1, Lily Company should choose 4%. The company could afford to have a higher expense valuation for the current year since earnings were much higher than expected. This would allow the company to record lower expenses for the upcoming years that may not be as strong.
For Scenario 2, Lily Company should choose 1%. The company had lower than expected earnings and would benefit from having lower expenses recorded. This would allow for higher expenses to be recorded in the future when the company foresees stronger earnings.
There are risks if Lily Company only makes their decision based off of this information. There is no way to completely predict how future years financials will turn out. If a company has another down year, such as in scenario 2, higher expenses would only magnify their struggles.
Please comment on post
For Scenario 1, Lily Company should choose 4%. The company could afford to have a higher expense valuation for the current year since earnings were much higher than expected. This would allow the company to record lower expenses for the upcoming years that may not be as strong.
For Scenario 2, Lily Company should choose 1%. The company had lower than expected earnings and would benefit from having lower expenses recorded. This would allow for higher expenses to be recorded in the future when the company foresees stronger earnings.
There are risks if Lily Company only makes their decision based off of this information. There is no way to completely predict how future years financials will turn out. If a company has another down year, such as in scenario 2, higher expenses would only magnify their struggles.
It is not correct to say that income depends upon expenditure only . Profitability depends upon proper Cost-benefit Analysis, demand & supply system in the market, availbality of resorces like raw material, labour, power, etc.
Availability of capital, strong marketing of the products also attracts income of any industry.
In case there is a demand in the market, company should use its idle capacity to enhance the production. Variable cost will be increased but fixed cost will unchanged : income will be increased. Company should consider fixed cost appropriately. Company should spend on Marketing (selling & distribution) which would be benefited in the future.
A compny should review \" Marginal costing analysis\" which help to decide whether we should produce more or less than existing production level.
Labour turn over should be reduced which will improve productivity and thus attract cost of prodcut.
Thus, we see that higher or lower expenses not only affect income, there are several other factors also affects affecting income.
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