If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage?
A) 0.0
B) 7.5
C) 2.0
D) 1.3

Question

Quizplus · Accepted Answer

Operating leverage = contribution margin / operating income

Contribution margin = sales - variable costs = $400,000 - ($400,000 x 0.80) = $80,000

Operating leverage = $80,000 / $40,000 = 2.0

Therefore, the answer is (C) 2.0.

If Sales Are $400,000, Variable Costs Are 80% of Sales