BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 21, Problem 21.6APE
Textbook Problem

Operating leverage

SungSam Enterprises reports the following data:

Sales $340,000
Variable costs 180,000
Contribution margin $160,000
Fixed costs 80,000
Income from operations $ 80,000

Determine SungSam Enterprises's operating leverage.

Expert Solution
To determine

Operating leverage: It is a ratio that measures the proportion of fixed cost on the total costs and the extent to which the changes in the sales volume affects the income from operations. It shows the relationship between the contribution margin and income from operations. The formula to calculate the operating leverage is as follows:

 Operatingleverage=ContributionMarginIncomefromoperations

To determine: S Enterprises’ operating leverage.

Explanation of Solution

Determine S Enterprises’ operating leverage.

Contribution margin =$160,000

Income from operations =$80,000

 Operatingleverage=ContributionMargin

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Chapter 21 Solutions

Accounting
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