Question

Wham Company sells electronic squirrel repellants for $53. Variable costs are 37% of sales and total fixed costs are $43,000. What is the firm's magnitude of operating leverage if 2,300 units are sold?

Answer 1

Selling price per unit = $53

Variable cost = 37% of sales

= 53 x 37%

= $19,61

Total fixed costs = $43,000

Number of units sold = 2,300

Income Statement
Sales (2,300 x 53)	121,900
Variable costs (2,300 x 19.61)	-45,103
Contribution margin	76,797
Fixed costs	-43,000
Operating income	$33,797

Operating leverage = Contribution margin/Operating income

= 76,797/33,797

= 2.27 (Rounded to 2 decimal)

the firm's magnitude of operating leverage if 2,300 units are sold = 2.27