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Degree of operating leverage of modern artifacts

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Problem: Modern Artifacts can produce keepsakes that will be sold for $280 each. Nondepreciation fixed costs are $4,200 per year, and variable costs are $220 per unit. The initial investment of $12,600 will be depreciated straight-line over its useful life of 6 years to a final value of zero, and the discount rate is 13%.

Required:

a. What is the degree of operating leverage of Modern Artifacts when sales are $30,800?

b. What is the degree of operating leverage when sales are $57,120?

c. Why is operating leverage different at these two levels of sales?

Reference no: EM131152639

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