What is the level of profits for a firm in which DOL = 5 and fixed costs including depreciation = $300,000?
A)$60,000
B)$75,000
C)$1,200,000
D)$1,500,000 DOL = 1 +
5 = 1 +
4 =

Question

Quizplus · Accepted Answer

The level of profits can be calculated using the formula: 
Profit = (DOL * Change in sales) - Fixed Costs
Since no change in sales is given, we can assume it to be 0. Therefore, Profit = -Fixed Costs = -$300,000
This means that the firm is operating at a loss of $300,000. Therefore, the best choice would be to cut costs or increase sales in order to increase profits. None of the options given provide such solutions, so the answer would simply be the option that represents the actual level of profits, which is a loss of $300,000. Option B represents this with a level of profits equal to -$75,000, which is the correct answer.

What Is the Level of Profits for a Firm in Which