Question

A company that makes organic fertilizer has supplied the following data: Bags produced and sold 200,000 Sales revenue $ 1,560,000 Variable manufacturing expense $ 660,000 Fixed manufacturing expense $ 448,000 Variable selling and administrative expense $ 180,000 Fixed selling and administrative expense $ 214,000 Net operating income $ 58,000 The company's degree of operating leverage is closest to:

Answer 1

Answer:

The company's degree of operating leverage is closest to $840000

Explanation:

Selling price per unit = Sales revenue / No. of bags sold

= $1560000/200000 bags = $7.8 per bag

Variable cost per unit=Total variable expenses/No. of units

= $840000/200000 units = $4.2 per bag

Company’s unit contribution margin = Selling price per unit-Variable cost per unit

= $7.8 per unit-$4.2 per unit = $3.6 per unit

Company's degree of operating leverage = Variables manufacturing expense + Variable selling and administrative expense

=$660000+$180000 = $840000