Marcus Corporation currently sells 150,000 units a year at a price of R4.00 a unit.Its variable costs are approximately 30% of sales, and its fixed operating costs amount to 50% of revenues at its current output level.Although fixed costs are based on revenues at the current output level, the cost level is fixed.What is Marcus' degree of operating leverage in rand sales?

Question

Quizplus · Accepted Answer

First, we need to calculate the contribution margin per unit, which is the sales price minus the variable costs per unit:
Contribution margin per unit = R4.00 - (30% x R4.00) = R2.80

Next, we can calculate the total contribution margin by multiplying the contribution margin per unit by the number of units sold:
Total contribution margin = R2.80 x 150,000 units = R420,000

We can then calculate the operating income (or profit) by subtracting the fixed operating costs from the total contribution margin:
Operating income = R420,000 - (50% x R600,000) = R420,000 - R300,000 = R120,000

Now we can use the formula for degree of operating leverage (DOL):
DOL = contribution margin / operating income

DOL = R420,000 / R120,000 = 3.5

Therefore, the answer is C, with a degree of operating leverage of 3.5. This means that for every 1% change in sales, there will be a 3.5% change in operating income.

Marcus Corporation Currently Sells 150,000 Units a Year at a Price