Question

Frank Corp has a contribution margin of $450,000 and profit of $150,000. What is its degree of operating leverage?

2.5

3

.33

1.67

Answer 1

3

Explanation:

given: contribution margin=$450,000 and net profit= $150,000

To find operating leverage

Now, operating leverage is a cost accounting formula that measures the degree to which a firm or project can increase operating income by increasing revenue. A business that generates sales with a high gross margin and low variables costs has high leverage.

`operating leverage=(contribution margin)/(net profit)`

therefore, operating leverage=
`(450000)/(150000)` =3

operating leverage is 3