A manufacturer of cedar shingles has supplied the following data: The company\'s

ID: 2436970 • Letter: A

Question

A manufacturer of cedar shingles has supplied the following data:

The company's degree of operating leverage is closest to:

Multiple Choice

25.88

11.25

75.38

1.99

Bundles of cedar shakes produced and sold 360,000 Sales revenue $ 2,412,000 Variable manufacturing expense $ 1,170,000 Fixed manufacturing expense $ 714,000 Variable selling and administrative expense $ 414,000 Fixed selling and administrative expense $ 82,000 Net operating income $ 32,000

The company's degree of operating leverage is closest to:

Multiple Choice

25.88

11.25

75.38

1.99

Explanation / Answer

Answer:

The company's degree of operating leverage=25.88

Working notes for the above answer is as under

Total

Per unit

Sales revenue

2412000

6.7

Less: Variable cost

Variable manufacturing expense

1170000

3.25

Variable selling and administrative expense

414000

1.15

Contribution margin

828000

2.3

less: Fixed cost

Fixed manufacturing expense

714000

Fixed selling and administrative expense

82000

Net operating income

32000

Company's degree of operating leverage

=Contribution margin / Net operating income

=828000/32000

=25.875

=25.88

Company's degree of operating leverage=25.88