Question

LO 3.5If a firm has a contribution margin of $78,090 and a net income of $13,700 for the current month, what is their degree of operating leverage?

0.21
1.21
2.4
5.7

Answer 1

5.7

Step-by-step explanation:

The contribution margin characterizes the marginal profit per unit of sales. The indicator is useful in various calculations, and can be used as a measure of operational leverage. As a rule, low values of the indicator are characteristic in labor-intensive sectors, high - in capital-intensive industry.

We have these data:

-contribution margin (CM) : $78,090

-net income (NI) :$13,700

-the degree of operating leverage (DoL) : ?

DoL=CM/NI= 78090/13700=5.7