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Answer to Questions 1.A fixed monetary value is a greet that in innate remains constant as saturation of drill changes but on a per unit theme varies inversely with changes in mint of activity. A variable bell is a live that in sum total changes directly and pro rata with changes in volume of activity but on a per unit basis is constant as volume of activity changes. An example of a fixed speak to is a supervisory programs salary in notification to units produced. An example of a variable toll is direct materials toll in relation to units produced. 2.Most business decisions are based on damage information. The behavior of cost in relation to volume affects total costs and cost per unit. For example, knowing that total fixed cost stays constant in relation to volume and that total variable cost increases proportionately with changes in volume affects a companys cost structure decisions. Knowing that volume is expected to increase would favor a fixed cost structure because of the potential benefits of operating supplement. 3.Operating leverage is the crack whereby a small percentage increase in gross revenue volume can produce a significantly higher(prenominal) percentage increase in wageability. It is the result of fixed cost behavior and measures the extent to which fixed costs are beingness used.

The higher the proportion of fixed cost to total cost the great the operating leverage. As sales increase, fixed cost does not increase proportionately but stays the same, allowing greater profits with the increased volume. 4.Operating leverage is calculated by dividing the contribution margin by net income. The result is the add of times greater the percentage increase in profit is to a percentage increase in sales. For example, if operating leverage is four, a 20% increase in sales give result in an 80% increase in profit. 5.The conception of operating leverage is limited in predicting profitability because in practice, changes in sales volume are usually colligate to changes in... If you want to get a full essay, order it on our website: Ordercustompaper.com

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