Question

The accounting manager of Gateway Inns has noted that every time the inn's average occupancy rate increases by 3.3 percent, the operating cash flow increases by 4.6 percent. What is the degree of operating leverage if the contribution margin per unit is $4?Group of answer choices
a. 2.37

b. .59

c. 3.31

d. 6.37

e. 5.07

Answer 1

Answer:

1.39

Explanation:

Data provided

Operating cash flow = 4.6%

Average occupancy rate = 3.3%

The computation of degree of operating leverage is shown below:-

Degree of operating leverage = Operating cash flow ÷ Average occupancy rate

= 4.6% ÷ 3.3%

= 0.046 ÷ 0.033

= 1.39

Therefore the correct answer is 1.39. so the option is not available and for computing the degree of operating leverage we simply applied the above formula.