Go Hard has total fixed costs of $2,160 per day. The firm manufactures Go Hard a

Question

Go Hard has total fixed costs of $2,160 per day. The firm manufactures Go Hard advice kits. The kits have a short-run average variable cost of $48, and all of them can be sold for $66 each. Assuming constant per unit variable costs in the relevant range, what is the breakeven level of daily output for the firm (= BE) and what is its degree of operating leverage (DOL) when daily output is Q = 170? Based on this information, BE and DOL are:

A. 100 and 2.4.
B. 100 and 3.4.
C. 120 and 3.4.
D. 240 and 1.2

Explanation / Answer

BE = FC/Contribution,C = 2160/(SP - VC) = 2160/(66 - 48) = 2160/18 = 120 DOL = C/P = 18/(C - FC/Q)= 18/(18 - 2160/170) = 3.4 Hence OPTION C is the ANSWER.

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