The Following Data Relate to the Lisle Company for May

question 37

Multiple Choice

The following data relate to the Lisle Company for May and August of the current year: $\begin{array}{lrr} & \text { May } & \text { August } \\\text { Maintenance hours } & 25,000 & 29,000 \\\text { Maintenance cost } & \$ 1,175,000 & \$ 1,247,000\end{array}$ May and August were the lowest and highest activity levels, and Lisle uses the high-low method to analyze cost behavior. Which of the following statements is true?

• A) The variable maintenance cost is $18 per hour.
• B) The variable maintenance cost is $22 per hour.
• C) The variable maintenance cost is $24 per hour.
• D) The fixed maintenance cost is $72,000 per month.
• E) More than one of the other answers is true.

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Definitions:

EBIT

Earnings Before Interest and Taxes, a measure of a firm's profit that includes all expenses except interest and income tax expenses.

Fixed-cost Financing

Refers to the method of raising capital where the company incurs fixed financial charges, such as interest on bonds or dividends on preferred stock, regardless of its financial performance.

Financial Leverage

A strategy involving the use of borrowed money to increase the potential return of an investment.

Operating Leverage

The use of fixed as opposed to variable cost in a firm’s cost structure.