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Julia's Catering has a monthly target operating income of $6,000. Variable expenses are 40% of sales and monthly fixed expenses are $3,600.
-What is Julia's operating leverage factor at the target level of operating income?

Question

Quizplus · Accepted Answer

Operating leverage factor = Contribution Margin / Operating Income. First, calculate the sales needed to achieve the target operating income: Let sales = X. Operating income = Sales - Variable Expenses - Fixed Expenses. Given that Operating Income = $6,000, Variable Expenses = 40% of Sales, and Fixed Expenses = $3,600, we have $6,000 = X - 0.4X - $3,600. Solving for X gives us sales of $16,000. Contribution Margin = Sales - Variable Expenses = $16,000 - (0.4 * $16,000) = $9,600. Therefore, Operating Leverage Factor = $9,600 / $6,000 = 1.60.

Use the Information Below to Answer the Following Question(s)