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12 October, 11:58

A company that makes organic fertilizer has supplied the following dа ta: Bags produced and sold 200,000 Sales revenue $ 1,560,000 Variable manufacturing expense $ 660,000 Fixed manufacturing expense $ 448,000 Variable selling and administrative expense $ 180,000 Fixed selling and administrative expense $ 214,000 Net operating income $ 58,000 The company's degree of operating leverage is closest to:

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  1. 12 October, 12:28
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    The company's degree of operating leverage is closest to $840000

    Explanation:

    Selling price per unit = Sales revenue / No. of bags sold

    = $1560000/200000 bags = $7.8 per bag

    Variable cost per unit=Total variable expenses/No. of units

    = $840000/200000 units = $4.2 per bag

    Company's unit contribution margin = Selling price per unit-Variable cost per unit

    = $7.8 per unit-$4.2 per unit = $3.6 per unit

    Company's degree of operating leverage = Variables manufacturing expense + Variable selling and administrative expense

    =$660000+$180000 = $840000
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