Question

The degree of operating leverage can be calculated as:

.

Closser Corporation produces and sells two products. In the most recent month, Product M50S had sales of $39,000 and variable expenses of $12,870. Product H50G had sales of $12,000 and variable expenses of $4,980. The fixed expenses of the entire company were $33,050. The break-even point for the entire company is closest to:

$ 33,050

$ 50,900

$ 17,950

$ 50,846

Answer 1

Contribution = Sales – Variable costs

Calculations	A	B	C = A + B
Particulars	Product M50S	Product H50G	Total
Sales	39000	12000	51000
Variable expenses	12870	4980	17850
Contribution	26130	7020	33150

Contribution margin ratio for the entire company

= Total Contribution / Total Sales

= $33,150 / $51,000

= 0.65 or 65%

So, Break even point (Sales)

= Fixed costs / Contribution margin ratio

= $33,050 / 0.65

= $ 50,846

So, as per above calculations, option D is the correct option