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19 July, 13:08

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

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  1. 19 July, 17:08
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    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
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