Question

A manufacturer of cedar shingles has supplied the following data:

Bundles of cedar shakes produced and sold		360,000
Sales revenue	$	2,412,000
Variable manufacturing expense	$	1,170,000
Fixed manufacturing expense	$	714,000
Variable selling and administrative expense	$	414,000
Fixed selling and administrative expense	$	82,000
Net operating income	$	32,000
The company's degree of operating leverage is closest to: Multiple Choice 25.88 11.25 75.38 1.99

Answer 1

Answer:

The company's degree of operating leverage=25.88

Working notes for the above answer is as under

	Total	Per unit
Sales revenue	2412000	6.7
Less: Variable cost
Variable manufacturing expense	1170000	3.25
Variable selling and administrative expense	414000	1.15
Contribution margin	828000	2.3
less: Fixed cost
Fixed manufacturing expense	714000
Fixed selling and administrative expense	82000
Net operating income	32000

Company's degree of operating leverage

=Contribution margin / Net operating income

=828000/32000

=25.875

=25.88

Company's degree of operating leverage=25.88