The following income statement is provided for Vargas, Inc. What is this company's magnitude of operating leverage?
A) 3.07
B) 0.33
C) 3.00
D) 1.67

Question

The following income statement is provided for Vargas, Inc.  What is this company's magnitude of operating leverage?
A) 3.07 
B) 0.33 
C) 3.00 
D) 1.67

Quizplus · Accepted Answer

Contribution margin = Revenues − Variable expenses
Contribution margin = $150,000 − ($50,000 + $10,000) = $90,000
Magnitude of operating leverage = Contribution margin ÷ Net income
Magnitude of operating leverage = $90,000 ÷ $30,000 = 3.00

The Following Income Statement Is Provided for Vargas, Inc