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4 March, 18:28

Taft Co. reports the following dа ta: Sales $875,000 Variable costs 425,000 Contribution margin $450,000 Fixed costs 150,000 Income from operations $300,000 Determine Taft Co.'s operating leverage. Round your answer to one decimal place.

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  1. 4 March, 22:22
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    1.5

    Explanation:

    The computation of operating leverage is shown below:-

    where,

    The (Sales - Variable costs) = Contribution margin

    The (Sales - Variable costs - Fixed costs) = EBIT

    So, the operating leverage is

    = (Contribution margin) : (Earning before Interest and Taxes)

    = ($875,000 - $425,000) : ($875,000 - $425,000 - $150,000)

    = $450,000 : $300,000

    = 1.5
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