Beemer's sales are $400,000, variable costs are 75% of sales, and operating income is $50,000. The operating leverage is
A) 2.5
B) 7.5
C) 2.0
D) 0

Question

Quizplus · Accepted Answer

Operating leverage is calculated as Contribution Margin / Operating Income. Contribution Margin = Sales - Variable Costs = $400,000 - (75% of $400,000) = $400,000 - $300,000 = $100,000. Operating Income = $50,000. Therefore, Operating Leverage = $100,000 / $50,000 = 2.0.

Beemer's Sales Are $400,000, Variable Costs Are 75% of Sales