Use the information below to answer the following question(s).
Northern Electric Co-op has variable expenses of 25% of sales and monthly fixed expenses of $285,000. The monthly target operating income is $75,000.
-What is N Electric Co-op's operating leverage factor at the target level of operating income?

Question

Quizplus · Accepted Answer

Operating leverage factor = contribution margin / operating income

Target operating income = $75,000
Contribution margin = sales - variable expenses = 100% - 25% = 75%
Fixed expenses = $285,000

Using the formula:

Operating leverage factor = 75% / ($75,000 + $285,000)
Operating leverage factor = 4.8

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