Question

Consider the following information: Sales 350,000 Variable costs 100,000 Fixed Expense 150,000 Net Income 50,000 Calculate...

Consider the following information:

Sales 350,000

Variable costs 100,000

Fixed Expense 150,000

Net Income 50,000

Calculate the degree of operating leverage

a. 2.0

b. 2.5

c. 5.5

d. 1.0

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Answer #1

Correct answer----------2.5

Working

Sales $        350,000.00
Less: Variable cost $        100,000.00
Contribution $        250,000.00
Less: Fixed Cost $        150,000.00
Operating profit $        100,000.00

The data in the above question has net income but we use Operating income for calculating degree of operating leverage.

Degree of Operating Leverage = Contribution Margin/Net Operating income
Degree of Operating Leverage = 250000/100000
Degree of Operating Leverage = 2.5
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