Question

Frontier Corp. sells units for $57, has unit variable costs of $29, and fixed costs of $164,000. If Frontier sells 10,000 units, what is its degree of operating leverage?

Answer 1

2.4

Step-by-step explanation:

Frontier corporation sells unit for $57

The unit variable cost is $29

Fixed cost is $164,000

Frontier sells 10,000 units

The first step is to calculate the contribution margin

= 57-29×10,000

= 28×10,000

= 280,000

Profit = 280,000-164,000

= 116,000

Degree of operating leverage can be calculated as follows

= 280,000/116,000

= 2.4