Sara Lee Has Noted That Every Time the Sales Quantity

question 408

Multiple Choice

Sara Lee has noted that every time the sales quantity increases by 5 percent for a particular project, the operating cash flow for the project increases by 8 percent. What is the degree of operating leverage for this project if the contribution margin is $2.50?

• A) .40
• B) .63
• C) .71
• D) 1.40
• E) 1.60

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Definitions:

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset over its useful life to reflect wear and tear or obsolescence.

Income Statement

A report detailing a business's income, expenditures, and profit for a certain timeframe.

Gross Profit

Revenue from sales minus the cost of goods sold before administrative, financial, and other operating expenses are deducted.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, indicating the ownership value.