Harley Company has sales of $500,000, variable costs are 75% of sales, and operating income is $40,000. What is Harley's operating leverage?
A) 0.0
B) 1.2
C) 1.3
D) 3.1

Question

Quizplus · Accepted Answer

Operating leverage is calculated as Contribution Margin / Operating Income. Contribution Margin is Sales minus Variable Costs, which is $500,000 - (0.75 * $500,000) = $125,000. Operating leverage is $125,000 / $40,000 = 3.125, which rounds to 3.1.

Harley Company Has Sales of $500,000, Variable Costs Are 75