Homework Answers
Correct Answer is A)1.25
Working Note
| Contribution= Target Income + Fixed Cost |
| Contribution= 7400+1840=9240 |
| Sales= X |
| Variable cost = 60% X |
| Contribution= Sales- Variable cost |
| (X-0.60X)=9240 |
| 0.40 X= 9240 |
| X= 23100 |
| Hence Sales= 23100, Variable cost = 23100X60%=13860 |
| Income Statement | |
| Sales | $23,100.00 |
| Less: Variable cost | -$13,860.00 |
| Contribution | $9,240.00 |
| Less: Fixed Cost | -$1,840.00 |
| Net Income | $7,400.00 |
| Operating Leverage= Contribution/ Net Income |
| =9240/7400=1.25 |
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