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

Question

Quizplus · Accepted Answer

Operating leverage is calculated as Contribution Margin / Operating Income. Contribution Margin is Sales minus Variable Costs, which is $400,000 - ($400,000 * 0.8) = $80,000. Therefore, Operating Leverage = $80,000 / $40,000 = 2.0.

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