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What is Linda's degree of operating leverage?

What is Linda's degree of operating leverage?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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What is Linda's degree of operating leverage? (Round answer to 2 decimal places, e.g. 52.75.) Operating leverage
Transcribed Image Text:What is Linda's degree of operating leverage? (Round answer to 2 decimal places, e.g. 52.75.) Operating leverage
Linda Robert sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $53,000 Cost of goods sold (all variable) 30,000 Gross margin 23,000 Selling expenses (70% variable) 8,000 Administrative expenses (20% variable) 12,000 Operating income $3,000
Transcribed Image Text:Linda Robert sells gourmet chocolate chip cookies. The results of her last month of operations are as follows: Sales revenue $53,000 Cost of goods sold (all variable) 30,000 Gross margin 23,000 Selling expenses (70% variable) 8,000 Administrative expenses (20% variable) 12,000 Operating income $3,000
Expert Solution
Step 1

Operating Cost is the efficiency ratio. It calculates the portion of the contribution covered by profit. It helps in determing the proportion of fixed and variable costs in total cost.

Contribution is Sales after variable cost. Variable Cost varies with the quantity of production.

While profit is Sales excluding all the cost.

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