Question

Light Me Up Lamps has variable expenses of​ 30% of sales and monthly fixed expenses of​ $140,000. The monthly target operating income is​ $70,000. What is Light Me Up​ Lamps' operating leverage factor at the target level of operating​ income?A.1.50

Answer 1

The operating leverage factor measures the relationship between fixed costs and operating income. It is calculated by dividing the contribution margin by the operating income.

Step-by-step explanation:

The operating leverage factor measures the relationship between fixed costs and operating income. It is calculated by dividing the contribution margin by the operating income. To find the contribution margin, we subtract the variable expenses from the sales. In this case, the variable expenses are 30% of sales, so the contribution margin would be 70% of sales. Let's say the sales are $X. Then, the operating leverage factor at the target level of operating income of $70,000 would be:

Operating leverage factor = Contribution margin / Operating income

Contribution margin = 70% * X = 0.7 * X

Operating leverage factor = (0.7 * X) / $70,000

Since we don't have the value of X, we can't calculate the exact operating leverage factor.