Question

Frank Corp has a contribution margin of $450,000 and profit of $150,000. What is its degree of operating leverage?

Answer 1

Answer:

3

Step-by-step explanation:

given: contribution margin=$450,000 and net profit= $150,000

To find operating leverage

Now, operating leverage is a cost accounting formula that measures the degree to which a firm or project can increase operating income by increasing revenue. A business that generates sales with a high gross margin and low variables costs has high leverage.

$operating leverage=\frac{contribution margin}{net profit}$

therefore, operating leverage=$\frac{450000}{150000}$ =3

operating leverage is 3