Modern Artifacts can produce keepsakes that will be sold for $30 each. Nondepreciation fixed costs are $400 per year, and variable costs are $20 per unit. The initial investment of $1,200 will be depreciated straight-line over its useful life of 10 years to a final value of zero, and the discount rate is 8%.
a. What is the degree of operating leverage of Modern Artifacts when sales are $1,620? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. What is the degree of operating leverage when sales are $2,760? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
c. Why is operating leverage different at these two levels of sales?