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Dorothy Thomas sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $48,000 Cost of goods sold (all variable) 20,000 Gross margin 28,000 Selling expenses (70% variabte) 8,000 Administrative expenses (20% variable) 12,000 Operating income $8,000

Dorothy Thomas sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $48,000 Cost of goods sold (all variable) 20,000 Gross margin 28,000 Selling expenses (70% variabte) 8,000 Administrative expenses (20% variable) 12,000 Operating income $8,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Dorothy Thomas sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $48,000 Cost of goods sold (all variable) 20,000 Gross margin 28,000 Selling expenses (70% variable) 8,000 Administrative expenses (20% variable) 12,000 Operating income $8,000 (a) What is Dorothy's degree of operating leverage? (Round answer to 2 decimal places, e.g. 52.75.) Operating leverage
Transcribed Image Text:Dorothy Thomas sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $48,000 Cost of goods sold (all variable) 20,000 Gross margin 28,000 Selling expenses (70% variable) 8,000 Administrative expenses (20% variable) 12,000 Operating income $8,000 (a) What is Dorothy's degree of operating leverage? (Round answer to 2 decimal places, e.g. 52.75.) Operating leverage
Expert Solution
Step 1

Operating Leverage= Price- Variable cost(Price- Variable cost) - Fixed Cost

An operating leverage is used to analyse the company's effectiveness of the pricing structure.

 

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