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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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