Question

Bristo Corporation has sales of 1600 units at $50 per unit. Variable expenses are 30% of the selling price. If total fixed expenses are $48,000, the degree of operating leverage is:

A. 3.00

B. 3.17

C. 7.00

D. 10.00

Answer 1

Answer:

correct option is C. 7.00

Explanation:

given data

sales = 1600 units

cost = $50

Variable expenses = 30%

total fixed expenses = $48,000

solution

we get here Degree of operating leverage that is express as

Degree of operating leverage = Sales - variable cost ÷ (sales - variable cost - fixed cost)    ......................1

here Sales is = 1600 × 50 = 80000

and

Variable cost = 80000 × 30% = 24000

put here value in equation 1 we get

Degree of operating leverage =  $\frac{80000 - 24000}{(80000 - 24000 - 48000)}$

Degree of operating leverage =  7

so correct option is C. 7.00