Wham Company sells electronic squirrel repellants for $60.Variable costs are 60% of sales and total fixed costs are $40,000.What is the firm's magnitude of operating leverage if 2,000 units are sold?
A) 0.17
B) 6.00
C) 2.25
D) none of these

Question

Quizplus · Accepted Answer

Net income = Sales - Variable expenses - Fixed expenses
Net income = ($60 x 2,000 units)- ($60 x 0.60 x 2,000 units)- $40,000 = $48,000 - $40,000 = $8,000
Magnitude of operating leverage = Contribution margin ÷ Net income
Magnitude of operating leverage =$48,000 ÷ $8,000 = 6.00
÷
Whether a cost behaves as a fixed cost or as a variable cost depends upon the:
A.
activity based used.
B.
cost structure of the company.
C.
industry
D.
significance of the dollar amount of the cost.

Wham Company Sells Electronic Squirrel Repellants for $60