Green Company's variable expenses are 75% of sales. At a sales level of $400,000, the company's degree of operating leverage is 8. At this sales level, fixed expenses are:

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Degree of operating leverage = Contribution margin / Net incomeContribution margin = Sales - Variable expensesVariable expenses = 75% of salesFixed expenses = Sales - Variable expenses - Net incomeAt a sales level of $400,000, the contribution margin is $400,000 x (1 - 0.75) = $100,000.The degree of operating leverage is 8, so the net income is $100,000 / 8 = $12,500.Therefore, fixed expenses are $400,000 - $100,000 - $12,500 = $87,500.

Green Company's Variable Expenses Are 75% of Sales