Soleon, Inc. had the following financial data for the fiscal year ending September 30, 2014. Sales $1,937,813
Depreciation and amortization $70,657
Fixed costs $132,456
Earnings before interest and taxes $564,441
Calculate the firm's degree of pre-tax cash flow operating leverage during fiscal 2014?

Question

Quizplus · Accepted Answer

Degree of pre-tax cash flow operating leverage = (Contribution Margin / EBIT)Contribution Margin = Sales - Variable CostsVariable Costs = Sales - Fixed Costs - Depreciation and AmortizationVariable Costs = $1,937,813 - $132,456 - $70,657 = $1,734,700Contribution Margin = $1,937,813 - $1,734,700 = $203,113Degree of pre-tax cash flow operating leverage = $203,113 / $564,441 = 1.21