Turner Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000 sales level, net operating income at the $150,000 sales level must equal: Group of answer choices

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Business

Raelynn Vargas

22 July, 02:04

Turner Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000 sales level, net operating income at the $150,000 sales level must equal: Group of answer choices

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Answers (1)

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Jovanni Lam · Answer 1

Net operating income = $1,875

Explanation:

The operating leverage is the ratio of Contribution to Net Operating Income. It is used to analyse the cost structure of a business to determine how much of its total cost is fixed.

It is computed as follows:

Operating leverage = Contribution/Net operating income

Contribution = Contribution margin * Sales revenue

= 15% * $150,000

= $22,500

Substitute this into the operating leverage equation

12 = 22,500 / y

y = 22,500/12

y = 1,875

Net operating income = $1,875