Modern artifacts can produce keepsakes that will be sold for $90 each. Nondepreciation fixed costs are $1,300 per year, and variable costs are $50 per unit. The initial investment of $3,900 will be depreciated straight line over its useful life of 5 years to a final value of zero, and the discount rate is 12%.
a. What is the degree of operating leverage of Modern Artifacts when sales are $4,950?
b. What is the degree of operating leverage when sales are $9,630?
c. Why is operating leverage different at these two levels of sales?