What Is the Degree of Operating Leverage? Sales = 100,000

question 115

Multiple Choice

What is the degree of operating leverage? Sales = 100,000 units; price = $50; variable cost = $30; fixed costs = $950,000; depreciation = $250,000; tax rate = 34%.

• A) 1.06
• B) 1.22
• C) 1.37
• D) 1.63
• E) 2.22

---

Definitions:

Common Cost

A cost that is incurred to support a number of cost objects but that cannot be traced to them individually. For example, the wage cost of the pilot of a 747 airliner is a common cost of all of the passengers on the aircraft. Without the pilot, there would be no flight and no passengers. But no part of the pilot’s wage is caused by any one passenger taking the flight.

Variable Costing

A costing method that includes only variable production costs (costs that change with the level of output) in product costs, excluding fixed manufacturing overhead.

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.

Net Operating Income

A company's operating profit after subtracting operating expenses but before interest and taxes.