Green Company's variable expenses are 75% of sales.At a sales level of $400,000,the company's degree of operating leverage is 8.At this sales level,fixed expenses equal which of the following?

Question

Quizplus · Accepted Answer

First, we need to calculate the operating income at the given sales level ($400,000):
Variable expenses = 75% of sales = 0.75 x $400,000 = $300,000
Contribution margin = Sales - Variable expenses = $400,000 - $300,000 = $100,000
Operating income = Contribution margin - Fixed expenses

Next, we can use the degree of operating leverage (DOL) formula to find the fixed expenses:
DOL = Contribution margin / Operating income
8 = $100,000 / Operating income
Operating income = $100,000 / 8 = $12,500

Finally, we can find the fixed expenses:
Operating income = Contribution margin - Fixed expenses
$12,500 = $100,000 - Fixed expenses
Fixed expenses = $100,000 - $12,500 = $87,500

Therefore, the answer is A) $87,500.

Green Company's Variable Expenses Are 75% of Sales