Question

 

 

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.)

Answer 1

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