ABC Company is evaluating the potential profitability of producing a new gadget. The management is considering

three different levels of fixed asset investment, each with its own set of fixed costs and production capacities.

Students must calculate the operating leverage for each level and determine which offers the most advantageous

risk$/$reward profile based on a given sales forecast.

Given Data:

Selling Price per Unit $($SP$)$: $$30$

Variable Cost per Unit $($VC$)$: $$10$

Expected Sales Volume $($Q$)$: $5,000$ units

Calculate the degree of operating leverage $($DOL$)$ for High Fixed Asset Investment $($High FAl$)$: Fixed Costs $($FC$)=$

$$80,000$

Multiple Choice

$5\mathrm{.}0$

$1\mathrm{.}25$

$6\mathrm{.}0$

$4\mathrm{.}0$