The Following Data Have Been Computed for a Firm: When

question 18

Multiple Choice

The following data have been computed for a firm: when sales are $20,000,EBIT is $5,000 and operating leverage is 2.5.Suppose sales increase to $23,000; what is the new level of EBIT?

• A) $1,875
• B) $6,875
• C) $3,000
• D) $8,435

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Definitions:

Machine-Hours

A unit of measure indicating the operational time of machines in manufacturing processes, key to determining overhead rates and productivity.

Direct Labor-Hours

The total hours of work directly involved in manufacturing goods or delivering services, often used as a basis for allocating overhead.

Casting

A process in manufacturing where a liquid material is poured into a mold which contains a hollow cavity of the desired shape and then allowed to solidify.

Assembly

The process of putting together various components or materials to create a finished product.