Assume that the amounts of the company’s total variable expenses and total fixed

Question

  

   

Assume that the amounts of the company’s total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $7,668 and the total fixed expenses are $13,400. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? (Round your answer to 2 decimal places.)

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):

Explanation / Answer

Contribution margin = sales -Variable cost

                            = 24200 - 7668

                              = 16532

Net Income =Contribution -fixed cost

                   = 16532 - 13400

                    = $ 3132

Degree of operating margin = contribution margin /net income

                                       = 16532 / 3132

                                       = 5.28

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