Cyber Monday 2024! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Free Preparation Discussions
MENU
AICPA Exam CPA-Business Topic 3 Question 8 Discussion
Actual exam question for
AICPA's
CPA-Business exam
Question #: 8
Topic #: 3
[All CPA-Business Questions]
Topic #: 3
A company has total costs of $100,000, of which 40% is variable costs. What is the operating leverage?
Suggested Answer:
C
Choice 'c' is correct. A shortcut computation for operating leverage is the ratio of fixed costs to variable costs. If total cost is $100,000 and variable cost is 40% of total costs (or $40,000), then fixed costs must be 60% (or $60,000). Operating leverage is then calculated as follows:
$60,000/$40,000 = 1.5
Choice 'a' is incorrect. .4 is obtained by dividing $100,000 into the variable cost of $40,000.
Choice 'b' is incorrect. .6 is obtained by dividing total costs into fixed costs.
Choice 'd' is incorrect. 2.5 is obtained by dividing total costs by variable costs.
Currently there are no comments in this discussion, be the first to comment!