Question

Blueberry Ltd. (BB) produce security software for communication devices. In 2019, BB earned an EBIT of $400 million on Sales of $600 million. In 2020, BB forecast that sales will grow to $700 million. Assuming that the ratio of operating expenses to sales for 2020 will be the same as in 2019, forecast BB's operating expenses for 2020.

Write your answer in millions, to two decimal places. That is, if your answer is $8,340,500,000, write 8340.50

Your Answer:

Answer 1

During 2019, the Sales = $ 600 Million and EBIT = $ 400 Million; Assuming no other aspects, the Total Operating Expenses a re calculated as below;

Sales - Operating Expenses - EBIT; Hence, Operating Expenses = Sales - EBIT = 600 - 400 = $ 200 Million;

Operating Expese to Sales Ratio = 200/600 = 33.33% or 1/3rd

During 2020, the sales are forecasted to $ 700 Million; Operating Expenses = Sales * 33.33% or 1/3rd of Sales = 700/3 = $ 233.33 Million;

Answer: The Operating Expenses during 2020 = $ 233.33 Million;