Neeley Grocery has a monthly target operating income of $25,000. Variable expenses are 20% of sales and monthly fixed expenses are $15,000. What is Neeley Grocery's operating leverage factor at the target level of operating income?

1.6

Explanation:

In this question, we use the operating leverage factor that is shown below:

Operating Leverage Factor = Contribution : Operating Income

where,

Contribution = Operating income + monthly fixed expenses

= $25,000 + $15,000

= $40,000

And, the operating income is $25,000

So, the operating leverage factor is

= $40,000 : $25,000

= 1.6