Question

Heather Hudson makes stuffed teddy bears. Recent information for her business follows: Selling price per bear$35.00 Total fixed cost per month 1,500.00 Variable cost per bear 24.00 Determine the degree of operating leverage if she sells 350 bears this month. (Round your answer to 2 decimal places.) 35.00

Answer 1

Answer:

1.64

Explanation:

Heather Hudson degree of operating leverage

Formula for degree of operating leverage will be:

Degree of Operating Leverage = Total Contribution Margin / Net Operating Income

Total CM = (35-24) * 350

= 3,850

Formula for Net operating income

Net Operating income = Contribution Margin – Fixed Costs

= 3,850 – 1,500 =2,350

Therefore:

Operating Leverage =

3,850/2,350

= 1.64

Answer 2

Answer:

1.64

Explanation:

Heather Hudson is a manufacturer of stuffed teddy bears, the following are the current information gotten from her business

Selling price of the bear= $35

Total fixed cost per month= 1,500

Variable cost for one near= 24

The formular used to calculate the degree of operating leverage is

= Total contribution margin/ Net operating income

First of all we have to find the Total contribution margin

= (35-24)×350

= 11×350

= 3,850

Total contribution cost = 3,850

The next step is to find the Net operating income

= Contribution margin-fixed costs

= 3,850-1,500

= 2,350

Therefore the degree of operating leverage is

= 3,850/2350

= 1.64

Hence Heather Hudson degree of operating leverage if she sells 350 bears for a month is 1.64