Edmonco Company produced and sold 45,000 units of a single product last year, with the following results: Edmonco's operating leverage factor was:

Question

Edmonco Company produced and sold 45,000 units of a single product last year, with the following results:  Edmonco's operating leverage factor was:

Quizplus · Accepted Answer

Operating leverage factor = Contribution Margin / Net Income
Given:
- Sales revenue = 45,000 units
- Selling price per unit = $10
- Variable cost per unit = $6
- Fixed costs = $90,000
Contribution margin = Sales revenue - Variable costs
= ($10 x 45,000) - ($6 x 45,000)
= $180,000
Net income = Contribution margin - Fixed costs
= $180,000 - $90,000
= $90,000
Operating leverage factor = $180,000 / $90,000
= 2
Thus, the operating leverage is 5.

Edmonco Company Produced and Sold 45,000 Units of a Single