Degree of Operating Leverage Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $78,000 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 3,500 units sold is $58,500.

Question

Business

Samson Mason

29 November, 15:53

Degree of Operating Leverage Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $78,000 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 3,500 units sold is $58,500.

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Christine Medina · Answer 1

2.33 times

Explanation:

Given that,

Number of pairs of shoes plans to sell = 3,500

Selling price of each = $60

Unit variable cost = $21

Total fixed cost = $78,000

Operating income = $58,500

Contribution margin:

= (Selling price - Variable cost) * Number of pairs of shoes plans to sell

= ($60 - $21) * 3,500

= $39 * 3,500

= $136,500

Degree of Operating Leverage:

= Total Contribution : Operating income

= $136,500 : $58,500

= 2.33 times