### Question 20Gyro Company sells its only product for $77. Variable costs per unit are $35. Total fixed costs are $340,000. The company is currently selling 12,000 units. Determine the operating leverage factor at this level of sales.Round to two decimals.[Text Box for Answer]---**Click Save and Submit to save and submit. Click Save All Answers to save all answers.**---**Explanation:** In this problem, you are required to determine the operating leverage factor, which is a measure of how revenue growth translates to growth in operating income. The formula for the degree of operating leverage (DOL) is:\[ \text{DOL} = \frac{\text{Contribution Margin}}{\text{Net Operating Income}} \]To determine the contribution margin:1. **Contribution Margin per Unit:** \[ \text{Selling Price per Unit} - \text{Variable Cost per Unit} \]\[ = \$77 - \$35 \]\[ = \$42 \]2. **Total Contribution Margin:** \[ \text{Contribution Margin per Unit} \times \text{Number of Units Sold} \]\[ = \$42 \times 12,000 \]\[ = \$504,000 \]To determine the net operating income:3. **Net Operating Income:** \[ \text{Total Contribution Margin} - \text{Total Fixed Costs} \]\[ = \$504,000 - \$340,000 \]\[ = \$164,000 \]Finally, we calculate the DOL:4. **Operating Leverage Factor:** \[ \text{DOL} = \frac{\$504,000}{\$164,000} \]\[ = 3.07 \]Therefore, the operating leverage factor at the current level of sales is **3.07**.

The contribution margin is calculated as difference between sales revenue and variable costs. The…

QUESTION 20 Gyro Company sells its only product for $77. Variable costs per unit are $35. Total fixed costs are $340,000. The company is currently selling 12,000 units. Determine the operating leverage factor at this level of sales. Round to two decimals.

QUESTION 20 Gyro Company sells its only product for $77. Variable costs per unit are $35. Total fixed costs are $340,000. The company is currently selling 12,000 units. Determine the operating leverage factor at this level of sales. Round to two decimals.

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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