Modern Artifacts can produce keepsakes that will be sold for $120 each. Nondepreciation fixed costs are $1,800 per year, and variable costs are $70 per unit. The initial investment of $5,400 will be depreciated straight-line over its useful life of 6 years to a final value of zero, and the discount rate is 18%. a. What is the degree of operating leverage of Modern Artifacts when sales are $7,440? b. What is the degree of operating leverage when sales are $12,000?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Modern Artifacts can produce keepsakes that will be sold for $120 each. Nondepreciation fixed costs are $1,800 per year, and variable costs are $70 per unit. The initial investment of $5,400 will be
a. What is the degree of operating leverage of Modern Artifacts when sales are $7,440?
b. What is the degree of operating leverage when sales are $12,000?
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