Question

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):

Sales	$	105,000
Variable expenses		73,500
Contribution margin		31,500
Fixed expenses		27,720
Net operating income	$	3,780

14. Assume that the amounts of the company’s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $27,720 and the total fixed expenses are $73,500. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round your answer to 2 decimal places.)

Answer 1

Operating leverage = Contribition margin/Net operating income
Sales	105000
Varible expenses	27720
Contribution Margin	77280
Fixed expenses	73500
Net operating income	3780
Operating Leverage = 77280/3780
Operating Leverage = 20.44