Wham Company sells electronic squirrel repellants for $60. Variable costs are 60% of sales and total fixed costs are $40,000. What is the firm's magnitude of operating leverage if 2,000 units are sold?
A) 0.17
B) 6.0
C) 2.25
D) none of these

Question

Quizplus · Accepted Answer

Operating leverage = Contribution margin / Net income= (Sales - Variable costs) / (Sales - Variable costs - Fixed costs)= (2,000 x $60 - 2,000 x $60 x 60%) / (2,000 x $60 - 2,000 x $60 x 60% - $40,000)= $24,000 / $16,000= 6.0

Wham Company Sells Electronic Squirrel Repellants for $60