Company A operates at a sales level of 1,200 units with a contribution margin of $30 per unit. Its income is $12,000. What is the company's degree of operating leverage?

Company A operates at a sales level of 1,200 units with a contribution margin of $30 per unit. Its income is $12,000. What is the company's degree of operating leverage?

multiple choice

    0.3
    4.0
    3.0 Correct
    1.2

Explanation

Knowledge Check 01
 
Degree of operating leverage = Contribution margin of $36,000 (or 1,200 units × Contribution margin per unit of $30) ÷ income of $12,000 = 3.0.
 

Knowledge Check 01
 
Units produced     1,000
Direct materials     $ 6
Direct labor     $ 10
Fixed overhead     $ 6,000
Variable overhead     $ 6
Fixed selling and administrative     $ 2,000
Variable selling and administrative     $ 2
 
The total product cost per unit under variable costing is:

multiple choice

    $24.
    $30.
    $28.
    $22. Correct

Explanation

Knowledge Check 01
 
Using variable costing, the total product cost per unit is determined as follows:
 
Direct materials of $6 + Direct labor of $10 + Variable overhead of $6 = Total product cost of $22 per unit.
 

Knowledge Check 01
 
Units produced     1,000
Direct materials     $ 6
Direct labor     $ 10
Fixed overhead     $ 6,000
Variable overhead     $ 6
Fixed selling and administrative     $ 2,000
Variable selling and administrative     $ 2

 
The total product cost per unit under absorption costing is:

multiple choice

    $24.
    $30.
    $28. Correct
    $22.

Explanation

Knowledge Check 01
 
Using absorption costing, the total product cost per unit is determined as follows:
 
Direct materials of $6 + Direct labor of $10 + Variable overhead of $6 + Fixed overhead of $6 (or $6,000 ÷ 1,000) = Total product cost of $28 per unit.

 

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