Question

Wham Company sells electronic squirrel repellants for $58. Variable costs are 42% of sales and total fixed costs are $48,000. What is the firm's magnitude of operating leverage if 2,800 units are sold?

Answer 1

Answer:

$2.04

Explanation:

The computation is shown below:

Sales      (2,800 units × $58)         $162,400

Variable cost (42% of sales)         -$68,208

Contribution margin                  $94,192

Fixed cost                                 ($48,000)

Net operating income                  $46,192

And,

Operating leverage = Contribution margin ÷ net operating income

= $94,192 ÷46,192

= $2.04