PE 21-6B Operating leverage

Westminster Co. reports the following data:

Sales                               $875,000
Variable costs                   425,000
Contribution margin       $450,000
Fixed costs                        150,000
Income from operations $300,000

Determine Westminster Co.’s operating leverage.

Answer:


Operating Leverage = 
Contribution Margin 
= $450,000 
=  1.5 
Income from Operations $300,000