Degree of Operating Leverage Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $50 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 5,000 units sold is $75,500. Required: Calculate the degree of operating leverage. (Round your answer to the nearest tenth.)
Degree of operating leverage
Degree of operating leverage = Total contribution margin / Operating Income
= [5,000 units x ($75 per unit - $50 per unit)] / $75,500
= [5,000 units x $25 per unit] / $75,500
= $125,000 / $75,500
= 1.7 Times
“Hence, the Degree of operating leverage will be 1.7”
Degree of Operating Leverage Head-First Company plans to sell 5,000 bicycle helmets at $75 each in...
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