Fancy Furniture has variable expenses of 40% of sales and monthly fixed expenses of $240,000. The monthly target operating income is $60,000. What is Fancy Furniture's operating leverage factor at the target level of operating income?

Question

Quizplus · Accepted Answer

Operating leverage factor is calculated as Contribution Margin / Operating Income. Contribution Margin = Sales - Variable Expenses. At target operating income, Contribution Margin = Fixed Expenses + Target Operating Income = $240,000 + $60,000 = $300,000. Operating Income = $60,000. Therefore, Operating Leverage Factor = $300,000 / $60,000 = 5.00.

Fancy Furniture Has Variable Expenses of 40% of Sales and Monthly