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31 January, 16:16

Morse Company reports total contribution margin of $48,000 and pretax net income of $12,000 for the current month. The degree of operating leverage is:a. 4.0b. 0.25c. 1.25d. 2.5e. 250%

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  1. 31 January, 19:30
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    Degree of operating leverage

    = Sales - Variable cost

    Sales - Variable cost - Fixed cost

    = Contribution

    Pre-tax net income

    = $48,000/$12000

    = 4

    The correct answer is A

    Explanation:

    Degree of operating leverage is the ratio of contribution to pre-tax net income. Contribution = $48,000 and pre-tax net income = $12,000.

    The division pf contribution by pre-tax net income gives the degree of operating leverage.
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