Ergotone Audio had a degree of accounting operating leverage equal to 1.60 during the most recent period. If the firm's EBITDA was $3,000 and its fixed costs were equal to $1,250, then what was Ergotone 's depreciation and amortization expense during the same period?(Round the final answer to the nearest whole dollar.)
A) $344
B) $507
C) $377
D) $404

Question

Quizplus · Accepted Answer

Degree of operating leverage = (EBIT/EBITDA) / (Sales - Variable costs)/Sales1.60 = (EBIT/3000) / (Sales - Variable costs)/Sales1.60 = (EBIT/3000) / (Sales/Sales - Variable costs/Sales)1.60 = (EBIT/3000) / (1 - Variable costs/Sales)1.60 = (EBIT/3000) / (1 - Variable costs/Sales)1 - Variable costs/Sales = 1/1.60 = 0.625Variable costs/Sales = 1 - 0.625 = 0.375Variable costs = 0.375 * SalesEBIT = Sales - Variable costs - Fixed costsEBIT = Sales - 0.375 * Sales - 1250EBIT = 0.625 * Sales - 1250EBITDA = EBIT + Depreciation and amortization expense3000 = 0.625 * Sales - 1250 + Depreciation and amortization expenseDepreciation and amortization expense = 3000 - 0.625 * Sales + 1250Depreciation and amortization expense = 1750 - 0.625 * SalesDepreciation and amortization expense = 1750 - 0.625 * (3000/0.625)Depreciation and amortization expense = 1750 - 3000Depreciation and amortization expense = -1250Depreciation and amortization expense = $344

Ergotone Audio Had a Degree of Accounting Operating Leverage Equal