Chapter 4, Problem 4.4IP

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What is the degree of operating leverage?

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Lavigne Solutions allocates manufacturing overhead based on machine hours. Each unit is expected to require 10 machine hours. According to the static budget, Lavigne expects to incur the following: 1. 600 machine hours per month (units × 10 machine hours per unit) 2. $7,800 in variable manufacturing overhead costs 3. $11,200 in fixed manufacturing overhead costs - During September, Lavigne actually used 520 machine hours to make 52 units and spent $7,200 on variable manufacturing costs and $11,000 on fixed manufacturing overhead costs. What is Lavigne’s standard variable manufacturing overhead allocation rate?

Qantas Industries has fixed costs of $250,000 and profit of $125,000. What is its degree of operating leverage? a. 1.5 b. 3 c. 2 d. 2.5