Which option provides the greatest degree of

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Chapter 21 / Exercise 21-3
Accounting
Reeve/Warren
Expert Verified
129. Which option provides the greatest degree of operating leverage if 600 people at- tend? a. Option one b. Option two c. Both options provide equal degrees of operating leverage. d. Operating leverage is indeterminable. Answer : b Difficulty : 3 Objective : 6 Terms to Learn : operating leverage
Option 1: \$18 x 600 / \$7,200 = 1.50; Option 2: \$22 x 600 / \$7,600 = 1.74 130. Option 1: Fixed costs of \$10,000 and a breakeven point of 500 units. Option 2: Fixed costs of \$20,000 and a breakeven point of 700 units. Which option should you choose if you are expecting to produce 600 units? Difficulty : 2 Objective : 6
Terms to Learn : operating leverage Option 1 will result in operating income while Option 2 will result in an operating loss. 131. Mrs. Granberry is going to sell Christmas tree lights for \$20 a box. The lights cost Marsha \$5 a unit and any unsold lights can be returned for a full refund. She is planning to rent a booth at the upcoming Happy Holidays Convention, which offers three options: 1. paying a fixed fee of \$1,500, or 2. paying a \$500 fee plus 10% of revenues made at the convention, or 3. paying 25% of revenues made at the convention. Which of the following statements is FALSE? Difficulty : 3 Objective : 6
Terms to Learn : operating leverage 132. In a company with low operating leverage:
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Chapter 21 / Exercise 21-3
Accounting
Reeve/Warren
Expert Verified
c. there is a higher possibility of net loss than a higher-leveraged firm d. less risk is assumed than in a highly leveraged firm Answer : d Difficulty : 3 Objective : 6 Terms to Learn : operating leverage 133. If the contributionmargin ratio is 0.30, targeted net income is \$76,800, and targeted sales volume in dollars is \$480,000, then total fixed costs are: a. \$23,000 b. \$44,160 c. \$67,200 d. \$144,000 Answer : c Difficulty : 3 Objective : 6 Terms to Learn : contribution margin ratio (X + \$76,800)/0.30 = \$480,000; X = \$67,200
134. Fixed costs: Difficulty : 2 Objective : 6
Terms to Learn : operating leverage 135. When a greater proportion of costs are fixed costs, then: Difficulty : 2 Objective : 6
Terms to Learn : operating leverage THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 136 THROUGH 139: The following information is for Barnett Corporation: Product X: Revenue \$10.00 Variable Cost \$2.50 Product Y: Revenue \$15.00 Variable Cost \$5.00 Total fixed costs \$50,000 3-22