Bristo Corporation has sales of 1,000 units at $60 per unit. Variable expenses are 40% of the selling price. If total fixed expenses are $26,000, the degree of operating leverage is: Multiple Choice 2.40 6.00 2.57 3.60

3.60

Explanation:

Given that,

Sales units = 1,000

Sales price per unit = $60

Variable expenses = 40% of the selling price

Total Fixed cost = $26,000

Contribution margin per unit:

= Selling price - Variable cost

= $60 - ($60 * 40%)

= $60 - $24

= $36

Total contribution:

= Contribution margin per unit * Sales units

= $36 * 1,000

= $36,000

Profit = Total contribution - Fixed cost

= $36,000 - $26,000

= $10,000

Degree of operating leverage:

= (Sales - Variable costs) : (Sales - Variable costs - Fixed Expenses)

= (60,000 - 24,000) : (60,000 - 24,000 - 26,000)

= 36,000 : 10,000

= 3.60