Pratt Corporation
Information Relating to the Current Operations of Pratt

question 68

Essay

Pratt Corporation
Information relating to the current operations of Pratt Corporation follows:
$\begin{array}{ll}\text { Sales } & \$ 120,000 \\\text { Variable costs } & (\underline{36,000}) \\\text { Contribution margin } & \$ 84,000 \\\text { Fixed costs } & (\underline{\$ 70,000}) \\\text { Profit before taxes } & \$ 14,000\end{array}$ Refer to Pratt Corporation.Compute Pratt's degree of operating leverage.

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Definitions:

Machine-Hours

A measure of production output or activity level, representing the total hours that machinery is operating over a specific period of time.

Markup

The difference between the cost of a good or service and its selling price, expressed as a percentage over the cost.

Variable Manufacturing Overhead

Costs that vary with production volume, including indirect materials, indirect labor, and other expenses that increase or decrease with output.

Direct Labor-Hours

The complete tally of hours that employees dedicate to the manufacturing process.