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Total contribution margin in dollars divided by pretax income is the: Select one: a. Degree of...

Total contribution margin in dollars divided by pretax income is the:

Select one: a. Degree of operating leverage. b. Contribution margin ratio. c. Margin of safety. d. Sales mix. e. Break-even point in units.

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Answer #1

a. Degree of operating leverage

Degree of operating leverage = Contribution margin in dollars divided by Pretax income

Explanation:

The formula to compute the degree of operating leverage is shown below:

= (Sales - Variable costs) ÷ (Sales - Variable costs - Fixed costs)

We know generally,

(Sales - Variable costs) = Contribution margin

(Sales - Variable costs - Fixed costs) = EBIT i.e Pretax Income

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