Parker Company
Below is an income statement for Parker Company:
Sales $ \$ 400,000 $
Variable costs $\underline{(125,000)}$
Contribution margin $275,000
Fixed costs $\underline{(200,000)}$
Profit before taxes $\underline{\$75,000}$

Refer to Parker Company.What is Parker's degree of operating leverage?
A)3.67
B)5.33
C)1.45
D)2.67

Question

Parker Company
Below is an income statement for Parker Company:
Sales                                                                          $ \$ 400,000 $
Variable costs                                                          $\underline{(125,000)}$
Contribution margin                                                  $275,000
Fixed costs                                                            $\underline{(200,000)}$
Profit before taxes                                                  $\underline{\$75,000}$

Refer to Parker Company.What is Parker's degree of operating leverage?
A)3.67
B)5.33
C)1.45
D)2.67

Quizplus · Accepted Answer

The degree of operating leverage is calculated as the contribution margin divided by the profit before taxes. In this case, the contribution margin is $275,000 and the profit before taxes is $75,000, so the degree of operating leverage is $275,000/$75,000 = 3.67.

Parker Company Below Is an Income Statement for Parker Company $400,000 \$ 400,000 $400,000

Parker Company
Below Is an Income Statement for Parker Company $\$ 400,000$