Light Me Up Lamps has variable expenses of 50 % of sales and monthly fixed expenses of $ 200 comma 000. The monthly target operating income is $ 30 comma 000. What is Light Me Up Lamps' operating leverage factor at the target level of operating income?

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Business

Ansley

13 June, 20:35

Light Me Up Lamps has variable expenses of 50 % of sales and monthly fixed expenses of $ 200 comma 000. The monthly target operating income is $ 30 comma 000. What is Light Me Up Lamps' operating leverage factor at the target level of operating income?

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Kenna Mckenzie · Answer 1

Operating Leverage Factor 7.67

Explanation:

Operating leverage factor is a very important measure of a company for forecasting growth. It shows the contribution margin that is necessary to gain against one $1 of operating income.

Contribution margin Ratio = Fixed cost + Target operating Income

Contribution Margin = $200,000 - 30,000 = $230,000

Operating Leverage factor = Contribution margin / Target Operating Income

Operating Leverage factor = $230,000 / $30,000 = 7.67