Answer:
option (A) 5
Explanation:
Data provided in the question:
Total fixed cost = $40,000
Selling price = $250 per unit
Average variable cost = $150
Output = 500 units
Now,
Firm's degree of operating leverage
= {output × ( Selling price - Variable cost )} ÷ {output × ( Selling price - Variable cost )-Total fixed cost}
on substituting the respective values, we get
= [tex]\frac{500\times( 250 - 150 )}{500\times(250 - 150 ) - 40,000}[/tex]
= 50,000 ÷ [ 50,000 - 40,000 ]
= 50,000 ÷ 10,000
= 5
Hence,
The correct answer is option (A) 5
