Cyber Monday 2024! Hurry Up, Grab the Special Discount - Save 25% - Ends In 00:00:00 Coupon code: SAVE25
Welcome to Pass4Success

- Free Preparation Discussions
Mail Us support@pass4success.com
Location PL
Mob_nav_barsMENU

AICPA Exam CPA-Business Topic 3 Question 85 Discussion

Actual exam question for AICPA's CPA-Business exam
Question #: 85
Topic #: 3
[All CPA-Business Questions]

A company has total costs of $100,000, of which 40% is variable costs. What is the operating leverage?

Show Suggested Answer Hide Answer
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.


by Johnson at Apr 25, 2024, 03:23 PM

Limited Time Offer

25%

Off

Get Premium CPA-Business Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel
Maybelle
7 months ago
Therefore, the operating leverage can be calculated as 1 / (1 - contribution margin ratio), which gives us 1 / 0.60 = 1.67.
upvoted 0 times
...
Roxane
7 months ago
In this case, the variable cost ratio is 0.40, so the contribution margin ratio is 0.60.
upvoted 0 times
...
Paris
7 months ago
Right, the contribution margin ratio is 1 - variable cost ratio.
upvoted 0 times
...
Temeka
7 months ago
I think we need to first calculate the contribution margin ratio.
upvoted 0 times
...
France
7 months ago
I agree, I'm not sure how to approach it.
upvoted 0 times
...
Marcos
7 months ago
Wow, that question on operating leverage seems tricky.
upvoted 0 times
...
Kiera
8 months ago
Trinidad: That means for every 1% change in sales, the operating income will change by 1.5%.
upvoted 0 times
...
Winfred
8 months ago
Virgina: Yes, exactly.
upvoted 0 times
...
Trinidad
8 months ago
Ernest: So the operating leverage is 1.5 then?
upvoted 0 times
...
Virgina
8 months ago
So, in this case, it would be 60% as 40% is variable costs.
upvoted 0 times
...
Ernest
8 months ago
It is calculated as the percentage of fixed costs to total costs.
upvoted 0 times
...
Royce
8 months ago
What is the operating leverage?
upvoted 0 times
...

Save Cancel
az-700  pass4success  az-104  200-301  200-201  cissp  350-401  350-201  350-501  350-601  350-801  350-901  az-720  az-305  pl-300  

Warning: Cannot modify header information - headers already sent by (output started at /pass.php:70) in /pass.php on line 77