Use the information below to answer the following question(s).
Ava's Fruit Cups has a monthly target operating income of $5,425. Variable expenses are 30% of sales and monthly fixed expenses are $9,800.
-What is Ava's operating leverage factor at the target level of operating income?

Question

Quizplus · Accepted Answer

Operating leverage factor = contribution margin / operating income
Contribution margin = sales - variable expenses
At the target operating income, operating income = $5,425
Variable expenses are 30% of sales, so contribution margin is 70% of sales
Let X be the sales needed to achieve the target operating income:
0.7X - 9,800 = 5,425
0.7X = 15,225
X = $21,750
Therefore, contribution margin = 0.7 * 21,750 = $15,225
Operating leverage factor = 15,225 / 5,425 = 2.8

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