To produce chewing gum,DryFruit Gum Company pays $100,000 per year for rent on a long-term lease and $25 per kilogram for sorbitol and other ingredients.The firm pays zero taxes.These are the only costs associated with making DryFruit Gum.During the year,the firm sells 30,000 kilograms of chewing gum at $45 per kilogram.The degree of total leverage for DryFruit is closest to:

Question

Quizplus · Accepted Answer

Contribution margin = 30*(45-25)= $600,000.Net income = CM-100 = $500,000.Degree of total leverage = 600/500 = 1.20 x 100%=120.00%

To Produce Chewing Gum,DryFruit Gum Company Pays $100,000 Per Year