A Firm Has Fixed Operating Costs of $650,000, a Sales

question 86

Multiple Choice

A firm has fixed operating costs of $650,000, a sales price per unit of $20, and a variable cost per unit of $13. At a base sales level of 500,000 units, the firm's degree of operating leverage is ________.

• A) 1.07
• B) 1.11
• C) 1.18
• D) 1.23

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Definitions:

Relevant Range

The scope of operations in which the premises regarding the behavior of variable and fixed costs hold true.

Cost Formula

An equation or method used to predict the cost associated with a certain level of activity or production volume.

Contribution Margin

The difference between sales revenue and variable costs of a product or service, highlighting how much contribution towards fixed costs and profit is made per unit sold.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and sales commissions.