Question
At a sales level of $270,000, the magnitude of operating leverage for Donuts Unlimited is 2.8. If sales increase by 15%, profits will increase by:
At a sales level of $270,000, the magnitude of operating leverage for Donuts Unlimited is 2.8. If sales increase by 15%, profits will increase by:
a. | 15% | |
b. | 18.67% | |
c. | 2.8% | |
d. | 42% |
Which of the following statements about highly leveraged companies is true?
a. | Fixed costs are high and variable costs are low. | |
b. | Small changes in sales volume result in larger changes in net income. | |
c. | There is a higher possibility of net income or net loss and therefore more risk in a highly leveraged firm. | |
d. | All of the above are true. |
Select the correct statement regarding fixed costs.
a. | The fixed cost per unit will decrease when volume increases. | |
b. | Since they do not change, fixed costs should be ignored in all decision making. | |
c. | The fixed cost per unit will not change when volume decreases. | |
d. | The fixed cost per unit will increase when volume increases. |
Handy Hiking produces backpacks. In 2007, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 4,000 backpacks at a total cost of $110,000. In January, it produced 2,500 backpacks at a total cost of $87,500. Using the high/low method, the average variable cost of producing a backpack was:
a. | $31.25 | |
b. | $30.38 | |
c. | $27.50 | |
d. | $15.00 |
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