Question

What is Neeley Grocery's operating leverage factor at the target level of operating income?

A. 1.60.
B. 0.63.
C. 2.67.
D. 0.40.

Answer 1

A. 1.60

Step-by-step explanation:

For computation of operating leverage factor first we need to determine the required contribution which is shown below:-

Required Contribution = Target Profit + Fixed Cost

= $25,000 + $15,000

= $40,000

Operating Leverage Factor = Contribution ÷ Operating Income

= $40,000 ÷ $25,000

= $1.60

Therefore for computing the operating leverage factor we simply applied the above formula.