Question

12.

Phillips Company expects to have a degree of operating leverage in 2020 of 3.5 based on expected sales revenue of $1,200,000 and expected operating income of $200,000.

If sales fall by 10%, Stevens can expect:

a. a decrease in operating income of $75,000

b. a decrease in operating income of $175,000

c. an increase in operating income of $70,000

d. a decrease in operating income of $70,000

10.   

Which of the following statements is not true?

a. Operating leverage measures the extent to which income from operations reacts to a change in sales.

b. A higher degree of operating leverage will result in a lower change in income from operations with a given change in sales.

c. A higher degree of operating leverage will result in a higher change in income from operations with a given change in sales.

1.  

True/False

____ 1. If a company replaces manual labor with automated factory equipment, it will increase fixed costs, its operating leverage, and its break-even point.

____ 2. Standards should be revised when prices, product designs, labor rates, or manufacturing methods change.

____ 3. Factory overhead uses different variances than direct materials and direct labor because factory overhead has fixed and variable cost elements. Direct materials and direct labor are variable costs.

Answer 1

Q12.
Answer is d. a decrease in operating income of $ 70,000.
Explanation:
Decrease in sales: 10%
Decrease in income = 10*3.5 = 35%
Q10.
Answer is b. A higher degree of operating leverage will result in lower change in income from operations with a given change in sales
Q1.
1.     FALSE
2. TRUE
3. TRUE