What Is the Degree of Operating Leverage for Flippin' Out

question 60

Multiple Choice

What is the degree of operating leverage for Flippin' Out Company, a maker of scuba flippers, if the firm sells its finished product for $50 per unit with variable costs per unit of $15? The company has fixed operating costs of $2,000,000 and sells 200,000 units. (The answer is rounded.)

• A) 2.0
• B) 3.7
• C) 6.5
• D) 1.4

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Definitions:

Input

Resources or factors used in the production process of goods and services, such as labor, capital, and materials.

Production Function

A mathematical model that describes the output generated from combinations of inputs, such as labor and capital.

Expensive

Having a high price or cost, often relative to the value or affordability for the buyer.

Input

Refers to any resource or factor that is used in the generation of goods or services in a production process. (Duplicate rephrase)