12.

Phillips Company expects to have a degree of operating leverage in 2020 of 3.5 based on expected sales revenue of $1,200,000 and expected operating income of $200,000.

If sales fall by 10%, Stevens can expect:

a. a decrease in operating income of $75,000

b. a decrease in operating income of $175,000

c. an increase in operating income of $70,000

d. a decrease in operating income of $70,000

10.

Which of the following statements is not true?

a. Operating leverage measures the extent to which income from operations reacts to a change in sales.

b. A higher degree of operating leverage will result in a lower change in income from operations with a given change in sales.

c. A higher degree of operating leverage will result in a higher change in income from operations with a given change in sales.

1.

True/False

____ 1. If a company replaces manual labor with automated factory equipment, it will increase fixed costs, its operating leverage, and its break-even point.

____ 2. Standards should be revised when prices, product designs, labor rates, or manufacturing methods change.

____ 3. Factory overhead uses different variances than direct materials and direct labor because factory overhead has fixed and variable cost elements. Direct materials and direct labor are variable costs.