Calculating operating leverage. TurkeyJerkey Dried Meats Ltd had a degree of accounting operating leverage equal to 1.714 during the most recent period. If the company's EBITDA was $4,000 and depreciation and amortisation was equal to $500, then what were TurkeyJerkey's fixed cash expenses during the same period?
A) $1,499
B) $1,999
C) $5,499
D) $5,999

Question

Quizplus · Accepted Answer

Operating leverage is calculated as 1 + (Fixed Costs / EBITDA). Given the degree of operating leverage is 1.714, we can set up the equation: 1.714 = 1 + (Fixed Costs / 4000). Solving for Fixed Costs gives us $2,856. Since depreciation and amortization are $500, the fixed cash expenses are $2,856 - $500 = $1,999.

Calculating Operating Leverage