Question

Goodman Corporation has sales volumes of 3,000 units at $80 per unit. Variable costs are 35% of the sales price. If total fixed costs are $66,000, the degree of operating leverage is:

Answer 1

Answer:

= 1.73

Explanation:

For computation of degree of operating leverage first we will find out the operating income which is shown below:-

Particulars                               Amount

Sales                                       $240,000  (3000 × $80)

Variable expenses                 $84,000  (240,000 × 35%)

Contribution margin                $156,000

Fixed Costs                               $66,000

Operating income                     $90,000

Degree of operating leverage = Contribution margin ÷ Operating income

= $156,000 ÷ $90,000

= 1.73