Modern Artifacts can produce keepsakes that will be sold for $40 each. Nondepreciation fixed costs are $600 per year, and variable costs are $30 per unit. The initial investment of $1,800 will be depreciated straight-line over its useful life of 6 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 $4,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Degree of operating leverage
b. What is the degree of operating leverage when sales are $7,360? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Degree of operating leverage
c. Why is operating leverage different at these two levels of sales?
Degree of operating leverage is (Click to select)higherlower when profits are (Click to select) higherlower.