Question

tom company reports the following data:

sales: $600,000
variable costs: 400,000
fixed costs: 100,000

determine tom companys operating leverage. round your answer to one decimal place.

Explanation:

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<reasoning>

Calculate contribution margin

Using the Variable Cost knowledge point
\[

$$\begin{aligned} \text{Contribution Margin} &= \text{Sales} - \text{Variable Costs} \\ &= \$600,000 - \$400,000 \\ &= \$200,000 \end{aligned}$$

\]

Calculate operating income

Using the Fixed Cost and Operating Income knowledge points
\[

$$\begin{aligned} \text{Operating Income} &= \text{Contribution Margin} - \text{Fixed Costs} \\ &= \$200,000 - \$100,000 \\ &= \$100,000 \end{aligned}$$

\]

Calculate degree of operating leverage

Using the Degree of Operating Leverage knowledge point
\[

$$\begin{aligned} \text{Operating Leverage} &= \frac{\text{Contribution Margin}}{\text{Operating Income}} \\ &= \frac{\$200,000}{\$100,000} \\ &= 2.0 \end{aligned}$$

\]
</reasoning>

<answer>
Determine Jinn Company's operating leverage. Round your answer to one decimal place.
<blank>2.0</blank>
</answer>

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Answer:

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<reasoning>

Calculate contribution margin

Using the Variable Cost knowledge point
\[

$$\begin{aligned} \text{Contribution Margin} &= \text{Sales} - \text{Variable Costs} \\ &= \$600,000 - \$400,000 \\ &= \$200,000 \end{aligned}$$

\]

Calculate operating income

Using the Fixed Cost and Operating Income knowledge points
\[

$$\begin{aligned} \text{Operating Income} &= \text{Contribution Margin} - \text{Fixed Costs} \\ &= \$200,000 - \$100,000 \\ &= \$100,000 \end{aligned}$$

\]

Calculate degree of operating leverage

Using the Degree of Operating Leverage knowledge point
\[

$$\begin{aligned} \text{Operating Leverage} &= \frac{\text{Contribution Margin}}{\text{Operating Income}} \\ &= \frac{\$200,000}{\$100,000} \\ &= 2.0 \end{aligned}$$

\]
</reasoning>

<answer>
Determine Jinn Company's operating leverage. Round your answer to one decimal place.
<blank>2.0</blank>
</answer>

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