The Following Information Was Gathered for Company J,a Manufacturing Company

question 151

Essay

The following information was gathered for Company J,a manufacturing company with three departments,A,B,and C:
Manufacturing supplies cost is expected to be $300,000.Possible cost drivers are direct labor hours,direct materials cost,and number of units completed and sold.The three departments have varying amounts for these items.
$\begin{array}{lrrr}& \text { Departrnent A } & \text { Department B } & \text { Departrnent C } \\ \text { Direct labor hours } & 15,000& 40,000 & 45,000 \\\text { Direct materials cost } & \$ 500,000 & \$ 2,500,000 & \$ 2,000,000 \\\text { \# of units expected to be } \\\text { completed and sold } & 80,000 &30,000 &40,000\end{array}$ Based on this information,indicate whether each of the following statements is true or false.

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Definitions:

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's earnings before interest and taxes (EBIT) to a percentage change in sales, indicating the impact of fixed costs on profits.

High-low Method

The high-low method is an accounting technique used to estimate the variable and fixed costs of a business based on the highest and lowest levels of activity.

Unit Sales Price

The price at which an individual unit of a product is sold, important for determining profitability and setting pricing strategies.

Advertising

The activity of promoting products or services to potential customers through various channels.