Fixed Costs Including Depreciation Have Increased at Leverage,Inc

question 87

Multiple Choice

Fixed costs including depreciation have increased at Leverage,Inc.from $4 million to $6 million in an effort to reduce variable costs.What must the new variable cost percentage be to leave break-even at $20 million?

• A) 60%
• B) 65%
• C) 70%
• D) 75%

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Definitions:

Substitution Effect

The economic understanding that as prices rise or income decreases, consumers will replace more expensive items with cheaper alternatives.

Price of Capital

The cost of using capital assets, which can include interest rates on loans used to purchase the assets or opportunity costs of investing capital elsewhere.

Demand for Labor

The total amount of labor that employers want to hire at varying wage rates in a given time period.

Related Resource

Resources that are connected or relevant to one another in such a way that the presence, absence, or alteration of one can affect the other.