Problem:
Consider a four-year project with the following information: initial fixed asset investment = $490,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $34; variable costs = $24; fixed costs = $190,000; quantity sold = 79,000 units; tax rate = 34 percent.
Required:
Question 1: What is the degree of operating leverage at the given level of output?
Question 2: What is the degree of operating leverage at the accounting break-even level of output?
Note: Show supporting computations in good form.