Question

Mark Company, Inc. sells electronics. The company generated sales of $45,000. Contribution margin is $20,000 and net income is $4,000. Based on this information, the magnitude of operating leverage is:

Answer 1

Answer: The magnitude of operating leverage is 5.

Explanation:

The magnitude of operating leverage is calculated by using the following formula:

Operating leverage = (Contribution margin ÷ Net income)

Here, Contribution margin is $20,000 and net income is $4,000.

So,  operating leverage = $ (20,000 ÷4,000)

=  5

Hence, the magnitude of operating leverage is 5.