What is the degree of operating leverage

Assignment Help Managerial Accounting

Reference no: EM132479354

Task 1. True or false:

Question I. Fixed costs have the property that on per unit basis vary as the activity level rises and falls.

Question II. Safety margin tells us by how much the sales level must decrease before we start losing.

Question III. Contribution margin is the excess of revenues over the cost of goods of sold.

Question IV. Sunk cost is an example of an unavoidable cost.

Question V. When preparing a production budget, the quantity to be produced equals: sales quantity + opening inventory-closing inventory.

Question VI. Losses due to evaporation were less than'expected could explain a favored direct material price ariance.

Question VII. Traceable fixed costs are relevant when making decision of dropping or not one of the segments.

Question VII. A company with a degree of operating leverage of 4 would expect net income to increase by 200% if sales increased from $ 50,000 to $ 100,000. IX. Depreciation is always a period cost. X. The cost formula may not be valid outside the relevant range of activity.

Task 2. EEE Company produces a single product which sells for $ 160 per.unit. Fixed expenses total $ 120,000 per month, and the unit contribution margin is $ 96. The company sales average 1,500 units per month.

Question a) What is the break-even point?

Question b) What is the safety margin ratio at the given level of sales?

Question c) What is the degree of operating leverage?

Question d) Would it be profitable for this company to increase fixed costs by $ 10,000 for advertising campaign in order to increase sales volume by 5%?

Task 3. The following information is given about the unit standard costs: Direct materials (2 kg at $ 0.5 per kg) =$1

Direct labor (0.5 h at $ 6 per hour) = $3

Variable production overhead (0.5 h at $ 8 per hour ) =$ 4

During the last year the following transactions occurred:

Raw materials purchased and used (36,700 kg) = $16,882

Direct labor (9,100 h) = $58,240

Variable production overhead = $74,600

Units produced = 18,000

Question : Compute all 6 variances and for each of them determine if they are favored or adverse.

Reference no: EM132479354

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