If a Firm's Degree of Total Leverage (DTL)is 8

question 64

Multiple Choice

If a firm's degree of total leverage (DTL) is 8.0,which of the following must be correct?

• A) The firm must have fixed operating costs.
• B) The firm must have fixed financial costs.
• C) The firm must have both fixed operating costs and fixed financial costs.
• D) The firm must have some fixed costs,but not enough information is given to determine whether the fixed costs are operating,financial,or both.
• E) With the information given,we cannot tell whether the firm has any fixed costs (either operating or financial)at all.

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Definitions:

Cost Object

Anything for which cost is measured and assigned, such as products, services, projects, or customers.

Direct Materials

Raw materials that can be directly linked to the production of finished goods and are an integral part of the finished product.

Manufacturers

Entities or individuals that produce goods using raw materials and labor, often involving machinery and equipment.

Factory Overhead

Indirect costs related to manufacturing that cannot be directly associated with specific product units, including rent, utilities, and maintenance of equipment.