51. Fred has the following information available.

Operating income | $500,000 |

Net income | $275,000 |

- Option : C
- Explanation : First, compute the degree of financial leverage: 500,000 / 275,000 = 1.818. Next, compute the degree of operating leverage: DTL = Degree of financial leverage * Degree of operational leverage. 3.63 = 1.818 * Degree of operational leverage. DOL = 2.

- Option : A
- Explanation : Alpha’s degree of operating leverage is the same as Beta’s, whereas Alpha’s degree of total leverage and degree of financial leverage are higher.

- Option : A
- Explanation : Breakeven quantity = (Fixed operating costs + fixed financial costs) / (Price per unit – variable cost per unit) = (F + C) / (P - V) = (250,000 + 65,000) / (125 – 62.5) = 5,040.

- Option : A
- Explanation : Operating breakeven units = F / (P - V) = (Rs.1,960 million) / (Rs.3,972 -
Rs.1,250)

= 720,058.7803 units Operating breakeven sales

= Rs.3,972 * 720,058.7803 units = Rs.2,860,073,475

or

Operating breakeven sales = (Rs.1,960 million) / [1 - (Rs.1,250 /Rs.3,972)] = Rs.2,860,073,475

Total breakeven = (Rs.1,960 million + Rs.376 million) / (Rs.3,972 - Rs.1,250) = (Rs.2,336 million ) / 2,722 = 858,192.5055

Breakeven sales = Rs.3,972 * 858,192.5055 units = Rs.3,408,740,632

or

Breakeven sales = (Rs.2,336 million) / [1- (Rs.1,250 / Rs.3,972)]

= Rs.3,408,740,632.

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