Goodman Corporation 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:
A) 0.79
B) 0.93
C) 2.67
D) 1.73

Question

Quizplus · Accepted Answer

Unit CM = Selling price per unit - Variable expenses per unit
= $80 per unit - (0.35 × $80 per unit) = $80 per unit - $28 per unit = $52 per unit
Contribution margin = $52 per unit × 3,000 units = $156,000
Profit = Unit CM × Unit sales - Fixed expenses
= $156,000 - $66,000 = $90,000
Degree of operating leverage = Contribution margin ÷ Net operating income
= $156,000 ÷ $90,000 = 1.73

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