Question

In: Accounting

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units

 

 

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):

 

     
Sales $ 90,000
Variable expenses   49,500
Contribution margin   40,500
Fixed expenses   33,210
Net operating income $ 7,290
 

14. Assume that the amounts of the company’s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $33,210 and the total fixed expenses are $49,500.

Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round your answer to 2 decimal places.)

Solutions

Expert Solution

Question no. 14.

Particulars   Amount
Sales $ 90,000
Less: Variable expenses   33,210
Contribution margin   $56,790
Less: Fixed expenses   49,500
Net operating income $ 7,290

Degree of operating leverage =  Contribution margin / Net operating income

Degree of operating leverage  = $56,790/7,290

Degree of operating leverage  = 7.79 times


Degree of operating leverage =  

= 7.79

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