Modern Artifacts.png - Modern Artifacts a What is the degree of operating leverage of Modern Artifacts when sales are $5,250 Degree of Operating

Modern Artifacts.png - Modern Artifacts a What is the...

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Unformatted text preview: Modern Artifacts a. What is the degree of operating leverage of Modern Artifacts when sales are $5,250? Degree of Operating leverage = 1 + Fixed costs (including depreciation) Profits Profit = Revenues - Variable costs - Fixed costs - Depreciation $5,250-4,200 -700 -300 =50 DOL = 1 + 1000= 21 50 b.What is the degree of operating leverage when sales are $8,450? Degree of Operating leverage = 1 + Fixed costs (including depreciation) Profits Profit = Revenues - Variable costs - Fixed costs - Depreciation $8,450-6,760 -700-300 = 690 DOL =1 + 1000= 2.45 690 c.Why is operating leverage different at these two levels of sales? When a firm has fixed costs, the DOL is higher when profits are lower because a $1 change in sales leads to a greater percentage change in profits....
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  • Spring '12
  • CDG
  • $1, Generally Accepted Accounting Principles, $5,250

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