The Following Income Statement Is Provided for Vargas, Inc What Is This Company's Magnitude of Operating Leverage?
A)3

question 14

Multiple Choice

The following income statement is provided for Vargas, Inc. $$\begin{array} { | l | r | } \hline \text { Sales reverue } ( 2,500 \text { urits } \mathrm { x } \$ 60 \text { per urit) } & \$ 150,000 \\\hline \text { Cost of goods sold (varable; } 2,500 \text { urits } \times \$ 20 \text { per urit) } & ( 50,000 ) \\\hline \text { Cost of goods sold (fived) } & ( 8,000 ) \\\hline \text { Gross margin } & 92,000 \\\hline \text { Admiristrative salaries } & ( 42,000 ) \\\hline \text { Depreciation } & ( 10,000 ) \\\hline \text { Supplies } ( 2500 \text { units } \times \$ 4 \text { per urit) } & ( 10,000 ) \\\hline \text { Net income } & \$ 30,000\\\hline\end{array}$$ What is this company's magnitude of operating leverage?

• A)3.07
• B)0.33
• C)3.00
• D)1.67

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Definitions:

Straight-Line Deprecation

A method of calculating the depreciation of an asset, where the cost is evenly spread over its useful life.

Intra-Entity Transfer

Refers to the movement of goods, services, or funds between different departments or units of the same organization.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against an asset, reflecting its reduction in value over time.

Amortization

The process of gradually writing off the initial cost of an intangible asset over a period, reflecting its consumption, expiration, or obsolescence.