A manufacturer of cedar shingles has supplied the following data: The company\'s
ID: 2436970 • Letter: A
Question
A manufacturer of cedar shingles has supplied the following data:
The company's degree of operating leverage is closest to:
Multiple Choice
25.88
11.25
75.38
1.99
Bundles of cedar shakes produced and sold 360,000 Sales revenue $ 2,412,000 Variable manufacturing expense $ 1,170,000 Fixed manufacturing expense $ 714,000 Variable selling and administrative expense $ 414,000 Fixed selling and administrative expense $ 82,000 Net operating income $ 32,000The company's degree of operating leverage is closest to:
Multiple Choice
25.88
11.25
75.38
1.99
Explanation / Answer
Answer:
The company's degree of operating leverage=25.88
Working notes for the above answer is as under
Total
Per unit
Sales revenue
2412000
6.7
Less: Variable cost
Variable manufacturing expense
1170000
3.25
Variable selling and administrative expense
414000
1.15
Contribution margin
828000
2.3
less: Fixed cost
Fixed manufacturing expense
714000
Fixed selling and administrative expense
82000
Net operating income
32000
Company's degree of operating leverage
=Contribution margin / Net operating income
=828000/32000
=25.875
=25.88
Company's degree of operating leverage=25.88
Total
Per unit
Sales revenue
2412000
6.7
Less: Variable cost
Variable manufacturing expense
1170000
3.25
Variable selling and administrative expense
414000
1.15
Contribution margin
828000
2.3
less: Fixed cost
Fixed manufacturing expense
714000
Fixed selling and administrative expense
82000
Net operating income
32000
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