Question

Wham Company sells electronic squirrel repellants for $58. Variable costs are 42% of sales and total fixed costs are $48,000. What is the firm's magnitude of operating leverage if 2,800 units are sold?

Answer 1

$2.04

Step-by-step explanation:

The computation is shown below:

Sales (2,800 units × $58) $162,400

Variable cost (42% of sales) -$68,208

Contribution margin $94,192

Fixed cost ($48,000)

Net operating income $46,192

And,

Operating leverage = Contribution margin ÷ net operating income

= $94,192 ÷46,192

= $2.04