Pickering Company produced and sold 45,000 units of a single product last year, with the following results: $\begin{array} { | c | r | }
\hline \text { Sales revenue } & \$ 1.350,000 \
\hline \text { Manufacturing costs: } & \
\hline \text { Variable } & 585.000 \
\hline \text { Fixcd } & 270.000 \
\hline \text { Sclling costs: } & \
\hline \text { Variable } & 40.500 \
\hline \text { Fixcd } & 54,000 \
\hline \text { Administrative cosis: } & \
\hline \text { Variable } & 184.500 \
\hline \text { Fixed } & 108.000 \
\hline
\end{array}$ Pickering's operating leverage factor was:

Question

Pickering Company produced and sold 45,000 units of a single product last year, with the following results: $\begin{array} { | c | r | } 
\hline \text { Sales revenue } & \$ 1.350,000 \
\hline \text { Manufacturing costs: } & \
\hline \text { Variable } & 585.000 \
\hline \text { Fixcd } & 270.000 \
\hline \text { Sclling costs: } & \
\hline \text { Variable } & 40.500 \
\hline \text { Fixcd } & 54,000 \
\hline \text { Administrative cosis: } & \
\hline \text { Variable } & 184.500 \
\hline \text { Fixed } & 108.000 \
\hline
\end{array}$ Pickering's operating leverage factor was:

Quizplus · Accepted Answer

The operating leverage factor is calculated as follows:

Operating Leverage Factor = Contribution Margin / Net Operating Income

To calculate the contribution margin, we need to subtract variable costs from sales revenue:

Contribution Margin = Sales Revenue - Variable Costs
Contribution Margin = $1,350,000 - $585,000 - $40,500 - $184,500
Contribution Margin = $540,000

To calculate net operating income, we need to subtract all operating expenses (both fixed and variable) from contribution margin:

Net Operating Income = Contribution Margin - Total Operating Expenses
Net Operating Income = $540,000 - ($270,000 + $54,000 + $108,000)
Net Operating Income = $108,000

Now, we can calculate the operating leverage factor:

Operating Leverage Factor = Contribution Margin / Net Operating Income
Operating Leverage Factor = $540,000 / $108,000
Operating Leverage Factor = 5

Therefore, the answer is B)5.

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