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Degree of Operating Leverage Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Unit variable cost is $21 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $78,000 (includes fixed factory overhead and fixed selling and administrative expense). Operating income at 3,500 units sold is $58,500.

Respuesta :

Answer:

2.33 times

Explanation:

Given that,

Number of pairs of shoes plans to sell = 3,500

Selling price of each = $60

Unit variable cost = $21

Total fixed cost = $78,000

Operating income = $58,500

Contribution margin:

= (Selling price - Variable cost) × Number of pairs of shoes plans to sell

= ($60 - $21) × 3,500

= $39 × 3,500

= $136,500

Degree of Operating Leverage:

= Total Contribution ÷ Operating income

= $136,500 ÷ $58,500

= 2.33 times

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