Question 11

Use the following information to determine which company has the higher operating risk.

	Company A	Company B
Number of units produced and sold	5000	5000
Sales price per unit	$60	$60
Variable cost per unit	$50	$40
Fixed operating cost	$2,000	$40,000
Fixed financing expense	$30,000	$8,000

		Company A because its degree of total leverage is 2.78.
		Company A because its degree of financial leverage is 2.67.
		Company B because its degree of operating leverage is 1.67.
		Company A because its degree of operating leverage is 1.04.