Goodman Company has sales of 3,000 units at $80 per unit.Variable costs are 35% of the sales price.If total fixed costs are $66,000,the degree of operating leverage is? (Round final your answer to two decimal places. )

Question

Quizplus · Accepted Answer

First, we need to calculate the total variable costs.

Variable costs = 0.35 x $80 x 3,000 = $84,000

Next, we can calculate the contribution margin per unit.

Contribution margin per unit = sales price - variable cost per unit 
= $80 - $24 (0.35 x $80) 
= $56

We now calculate the contribution margin ratio:

Contribution margin ratio = contribution margin ÷ sales 
= ($56 x 3,000) ÷ ($80 x 3,000) 
= 0.70

Using the degree of operating leverage formula:

Degree of operating leverage = contribution margin ÷ net income 
= contribution margin ÷ (contribution margin - fixed costs)

Degree of operating leverage = $56 x 3,000 ÷ ($56 x 3,000 - $66,000) 
= 1.73 (rounded to two decimal places)

Therefore, the answer is choice C.

Goodman Company Has Sales of 3,000 Units at $80 Per