Question

A company that makes organic fertilizer has supplied the following data: Bags produced and sold 240,000 Sales revenue $1,896,000 Variable manufacturing expense $804,000 Fixed manufacturing expense $520,000 Variable selling and administrative expense $180,000 Fixed selling and administrative expense $270,000 Net operating income $122,000 The company's degree of operating leverage is closest to:a. 140,000 units

b. 202,238 units
c. 125,714 units
d. 32,105 units

Answer 1

7.47 times

Explanation:

The computation of operating leverage is shown below:-

= (Sales - Variable costs) ÷ (Sales - Variable costs - Fixed costs)

= ($1,896,000 - $804,000 - $180,000) ÷ ($1,896,000 - $804,000 - $180,000 - $520,000 - $270,000)

= $912,000 ÷ $122,000

= 7.47 times

The (Sales - Variable costs) = Contribution margin

The (Sales - Variable costs - Fixed costs) = EBIT

The correct answer is 7.47 times.Therefore, the option is not available.