Nancy Daniel sells gourmet chocolate chip cookies. The results of her last month of operations are as follows:Sales revenue$49,500Cost of goods sold (all variable)24,500Gross margin25,000Selling expenses (70% variable)8,000Administrative expenses (20% variable)12,000Operating income$5,000(a)'hat is Nancy's degree of operating leverage? (Round answer todecimal places, e.g. 52.75.)Operating leverage

Answered: Nancy Daniel sells gourmet chocolate…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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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