Why is operating leverage different at two levels of sales

Assignment Help Financial Management

Reference no: EM131071034

Modern Artifacts can produce keepsakes that will be sold for $40 each. No depreciation fixed costs are $600 per year, and variable costs are $20 per unit. The initial investment of $1,800 will be depreciated straight-line over its useful life of 9 years to a final value of zero, and the discount rate is 13%.

a. What is the degree of operating leverage of Modern Artifacts when sales are $1,800? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Degree of operating leverage

b. What is the degree of operating leverage when sales are $2,880? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Degree of operating leverage

c. Why is operating leverage different at these two levels of sales?

Degree of operating leverage (increasing/decreasing) is when profits are (increasing/decreasing).

Reference no: EM131071034

Questions Cloud

Calculate the average cash flow from the mine : A silver mine can yield 16,000 ounces of silver at a variable cost of $34 per ounce. The fixed costs of operating the mine are $56,000 per year. In half the years, silver can be sold for $50 per ounce; in the other years, silver can be sold for only ..

Sale or exchange bently corporation : Sale or Exchange Bently Corporation can sell a warehouse for $800,000 that has a basis of $300,000. It has two replacement alternatives. It can purchase a replacement warehouse for $800,000 or it can make a direct exchange for another suitable war..

Websites on cloud computing : The goal of taking advantage of cloud computing is to have your computing costs align with the activity level of your organization. The future of Cloud computing brings new ways to collaborate everywhere through mobile devices. Surf the Internet ..

What is the overall significance of the regression : What is the overall significance of the regression?

Why is operating leverage different at two levels of sales : Modern Artifacts can produce keepsakes that will be sold for $40 each. No depreciation fixed costs are $600 per year, and variable costs are $20 per unit. What is the degree of operating leverage of Modern Artifacts when sales are $1,800? What is the..

Joining senior management : Proper training is one of the main tools in maintaining a successful OHS program. With out training, all the industry's policies & procedures are just words in writing. Unfortunately, not everyone seems the same way. Basic safety training is often..

Setting up arranging : Larry, a supplementary school kid searching for a midyear employment, was procured as a make meals at a close-by eatery. Larry had no experience doing work in kitchens, yet the director who procured him, clarified which it wasn't essential, since ..

What is the NPV and payback period of investment : Riggs, Inc. management is planning to spend $650,000 on a new marketing campaign. They estimate this will result in additional cash flows of $325,000 over the next three years. If the cost of capital is 17.5 percent, what is the NPV of this investmen..

How does the availability of substitutes affect the price : How does the availability of substitutes affect the price elasticity of demand

User Account

All Pages