Healthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag. The Fixed costs of this operation are $80,000. while the variable costs of grapes are $.10 per pound. A. What is the degree of the operating leverage at 20,000 bags and at 25,000 bags? Why does the degree of operating leverage change as the quantity sold increases? B. If Healthy Foods has an annual interest expense of $10,000 calculate the degree of financial leverage at both 20,000 and 25,000 bags. C. What is the degree of combined leverage at both sales levels?
Healthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag. The Fixed costs of this operation are $80,000. while the variable costs of grapes are $.10 per pound. A. What is the degree of the operating leverage at 20,000 bags and at 25,000 bags? Why does the degree of operating leverage change as the quantity sold increases? B. If Healthy Foods has an annual interest expense of $10,000 calculate the degree of financial leverage at both 20,000 and 25,000 bags. C. What is the degree of combined leverage at both sales levels?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Healthy Foods Inc. sells 50-pound bags of grapes to the military for $10 a bag. The Fixed costs of this operation are $80,000. while the variable costs of grapes are $.10 per pound.
A. What is the degree of the operating leverage at 20,000 bags and at 25,000 bags? Why does the degree of operating leverage change as the quantity sold increases?
B. If Healthy Foods has an annual interest expense of $10,000 calculate the degree of financial leverage at both 20,000 and 25,000 bags.
C. What is the degree of combined leverage at both sales levels?
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