Question

Tom Company reports the following data.

Sales $385,187
Variable costs 200,887
Fixed costs 87,300

Required:
Determine Tom Company's operating leverage. Round your answer to one decimal place.

Answer 1

Answer: 1.9

Explanation:

The Operating Leverage is calculated by;

Operating leverage = Contribution margin / Operating income

Contribution Margin

= Sales - Variable Costs

= 385,187 - 200,887

= $184,300‬

Operating Income

= Contribution Margin - Fixed Costs

= 184,300 - 87,300

= $97,000

Operating Leverage = 184,300‬/ 97,000

= 1.9