Question

Given operating fixed costs INR 20,000, operating fixed costs 20,000, P/V ratio 40%. The operating leverage is:

a. 1
b. 2
c. 2.5
d. 3

Answer 1

The operating leverage cannot be calculated with the given information.

Step-by-step explanation:

The operating leverage can be calculated using the formula:

Operating Leverage = Contribution Margin / Net Income

Given that the Contribution Margin is equal to the product of the Unit Contribution Margin and the Quantity Sold, and the Net Income is equal to the Revenue minus the Total Fixed Costs, we can calculate the Operating Leverage using the given information:

Operating Leverage = (P/V ratio) / (1 - (Fixed Costs / Net Income))

Plugging in the values:

Operating Leverage = 0.4 / (1 - (20000 / 20000))

Simplifying the equation:

Operating Leverage = 0.4 / (1 - 1)

Operating Leverage = 0.4 / 0

Since division by zero is undefined, the operating leverage in this case is not a valid number. Therefore, none of the given options (a, b, c, d) are correct.

Answer 2

The operating leverage cannot be determined without knowing the operating profits.

Step-by-step explanation:

The operating leverage can be calculated using the formula: Operating Leverage = Operating Fixed Costs / Operating Profits. In this case, the operating fixed costs are INR 20,000 and we need the operating profits to calculate the leverage. Unfortunately, the operating profits are not provided in the question, so it is not possible to determine the operating leverage.