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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Based on the following operating data, what is the operating leverage?

A. 0.8
B. 1.2
C. 1.8
D. 4.0

To determine

Concept Introduction:

Degree of operating leverage:

The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:

  Degree of operating leverage =  Contribution MarginOperating income 

  Change in operating income = Changes in sales ×Degree of operating leverage

To Calculate:

The Degree of operating leverage

Explanation

The Degree of operating leverage is calculated as follows:

    Total Contribution Margin (C) $ 360,000

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