Econ Pty Ltd produced and sold 45 000 units of a single product last year. Data concerning the year's profit and loss statement is as follows:
What was Econ's operating leverage?

Question

Econ Pty Ltd produced and sold 45 000 units of a single product last year. Data concerning the year's profit and loss statement is as follows: 
What was Econ's operating leverage?

Quizplus · Accepted Answer

Operating leverage = Contribution margin / Operating income
Contribution margin = Sales - Variable costs
Contribution margin = $3,150,000 - ($22 × 45,000)
Contribution margin = $3,150,000 - $990,000
Contribution margin = $2,160,000
Operating income = $330,000
Operating leverage = $2,160,000 / $330,000
Operating leverage = 6.55
Therefore, the closest choice is B) 5.

Econ Pty Ltd Produced and Sold 45 000 Units of a Single