Given the Following Information, What Is the Degree of Operating

question 149

Multiple Choice

Given the following information, what is the degree of operating leverage? Price = $40 per unit; variable cost = $20 per unit; fixed costs = $95,000 per year; depreciation = $35,000 per year; sales
= 10,000 units per year. Ignore tax effects.

• A) 0.9
• B) 1.3
• C) 1.5
• D) 1.9
• E) 2.4

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Definitions:

Par Common Stock

The nominal or face value assigned to a share of common stock, as stated in the corporate charter.

Market Value

The immediate market value at which one can buy or sell an asset or service.

Dividend

A portion of a company's earnings that is distributed to shareholders, typically in the form of cash or additional stock, as a reward for investing in the company.

Fair Value Accounting

An accounting approach where assets and liabilities are recorded at their current market value rather than historical cost.