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trasher [3.6K]
3 years ago
11

Consider a four-year project with the following information:

Business
1 answer:
Gwar [14]3 years ago
3 0

Answer and Explanation:

1. The computation of the Degree of operating leverage is

= Quantity sold × (Price - Variable cost) ÷ (Quantity sold × (Price - Variable cost) - Fixed cost)

where,

Fixed cost = $160,000 + $470,000 ÷ 4

= $277,500

Now the degree of operating leverage is  

= 77000 × ($30 - $20) ÷ ($77,000 × ($30 - $20) - $277,500)

= 1.56

2. The Accounting Break-even level of output  is

The break even point is

= Fixed cost ÷ (Price - Variable cost)

= $277500 ÷ ($30 - $20)

= $27,750

As the degree of operating leverage could not be calculated as the denominator comes to zero

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