Question

LO 3.5If a firm has a contribution margin of $59,690 and a net income of $12,700 for the current month, what is their degree of operating leverage?

0.18
1.18
2.4
4.7

Answer 1

4.7

Step-by-step explanation:

The computation of the degree of operating leverage is presented below:

= Contribution margin ÷ Net income

= $59,690 ÷ $12,700

= 4.7

where,

Contribution margin = Sales - Variable costs

And, the net income would be

= Sales - Variable costs - Fixed costs

The net income is also known as earning before interest and taxes