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Nonamiya [84]
3 years ago
14

Schlictor company sells cordless razors for $50. Variable costs are 40% of sales and total fixed costs are $40,000. What is the

firm's operating leverage if 2,000 units are sold?
Business
1 answer:
Nataly [62]3 years ago
4 0

Answer: Schlictor's operating leverage when 2000 units are sold is 3.

The degree of operating leverage is used to calculate the change in operating income with respect to a percentage change in sales.

We can calculate operating leverage of a firm with the help of the following formula:

Degree of operating leverage = \frac{Sales - Variable Costs}{Sales - (Variable costs + Fixed Costs)}

Substituting the values from the question we get

Degree of operating leverage = \frac{(50 * 2000) - (50*0.40*2000)}{[50*2000] - [(50*0.4*2000) + 40000]}

Degree of operating leverage = \frac{100000 - 40000}{[100000] - [(40000) + 40000]}

Degree of operating leverage = \frac{60000}{20000}

Degree of operating leverage = 3

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