Question

Neeley Grocery has a monthly target operating income of​ $25,000. Variable expenses are​ 20% of sales and monthly fixed expenses are​ $15,000. What is Neeley​ Grocery's operating leverage factor at the target level of operating​ income?

Answer 1

Answer:

1.6

Explanation:

In this question, we use the operating leverage factor that is shown below:

Operating Leverage Factor = Contribution ÷ Operating Income

where,

Contribution = Operating income + monthly fixed expenses

                     = $25,000 + $15,000

                     = $40,000

And, the operating income is $25,000

So, the operating leverage factor is

= $40,000 ÷ $25,000

= 1.6

Answer 2

The operating leverage factor is 1.6

Calculation of operating leverage factor:

Operating Leverage Factor = Contribution ÷ Operating Income

Here

Contribution = Operating income + monthly fixed expenses

                    = $25,000 + $15,000

                    = $40,000

And, the operating income is $25,000

So, the operating leverage factor is

= $40,000 ÷ $25,000

= 1.6

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