The February contribution format income statement of Mcabier Corporation appears below: The degree of operating leverage is closest to:
A)0.27
B)6.79
C)3.70
D)0.15

Question

The February contribution format income statement of Mcabier Corporation appears below:  The degree of operating leverage is closest to:
A)0.27 
B)6.79 
C)3.70 
D)0.15

Quizplus · Accepted Answer

Degree of operating leverage = Contribution Margin / Net Operating Income

Contribution Margin = Sales - Variable Expenses
Contribution Margin = $870,000 - $435,000
Contribution Margin = $435,000

Net Operating Income = $98,100

Degree of operating leverage = $435,000 / $98,100
Degree of operating leverage = 4.44 (rounded to two decimal places)

Therefore, the closest option to the degree of operating leverage is 3.70 (Option C). Degree of operating leverage = Contribution margin ÷ Net operating income
= $115,200 ÷ $31,100 = 3.70

The February Contribution Format Income Statement of Mcabier Corporation Appears