Question

If sales are $400,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage? (round to one decimal place.)

Answer 1

If sales are $400,000, variable costs are 75% of sales, and operating income is $40,000, what is the operating leverage? 

Sales = $400,000
Variable costs = .75
($400,000) (.75) = $300,000

Operating leverage = ($400,000 - $300,000)/$40,000 = 2.5
Operating leverage is 2.5