If a firm has a contribution margin of $59,690 and a net income of $12,700 for...
If a firm has a contribution margin of $59,690 and a net income of $12,700 for the current month, what is their degree of operating leverage?
Group of answer choiceS
A: 0.18
B: 2.4
C: 1.18
D: 4.7
Homework Answers
Solution -
The operating leverage is the result of presence of fixed costs that helps in magnifying the net operating income fluctuations arising from revenue variations (these variations are generally small).
formula
operating leverage= contribution margin/net income
=59,690 /12,700=4.7
Answer is d option
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