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Nancy Daniel sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $49,500 Cost of goods sold (all variable) 24,500 Gross margin 25,000 Selling expenses (70% variable) 8,000 Administrative expenses (20% variable) 12,000 Operating income $5,000 (a) What is Nancy's degree of operating leverage? (Round answer to 2 decimal places, e.g. 52.75.) Operating leverage

Nancy Daniel sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $49,500 Cost of goods sold (all variable) 24,500 Gross margin 25,000 Selling expenses (70% variable) 8,000 Administrative expenses (20% variable) 12,000 Operating income $5,000 (a) What is Nancy's degree of operating leverage? (Round answer to 2 decimal places, e.g. 52.75.) Operating leverage

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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Nancy Daniel sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $49,500 Cost of goods sold (all variable) 24,500 Gross margin 25,000 Selling expenses (70% variable) 8,000 Administrative expenses (20% variable) 12,000 Operating income $5,000 (a) 'hat is Nancy's degree of operating leverage? (Round answer to decimal places, e.g. 52.75.) Operating leverage
Transcribed Image Text:Nancy Daniel sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $49,500 Cost of goods sold (all variable) 24,500 Gross margin 25,000 Selling expenses (70% variable) 8,000 Administrative expenses (20% variable) 12,000 Operating income $5,000 (a) 'hat is Nancy's degree of operating leverage? (Round answer to decimal places, e.g. 52.75.) Operating leverage
Expert Solution
Step 1

Operating leverage:

Operating leverage indicates the firm's degree to which the firm uses its fixed assets, compared to its operating income. It is calculated with the help of the following formula:

Operating leverage = Contribution/Operating income

                                = (Sales - Variable cost) / (Sales - Variable cost - Fixed costs)

 

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