Question

contribution margin $1,540,000
fixed costs (440,000)
operating income $1,100,000

determine haywood co.s operating leverage. round your answer to one decimal place.

Explanation:

Identify the given financial values

The image displays the following values from Haywood Co.'s income statement:

• Contribution margin: \( \$1,540,000 \)
• Fixed costs: \( \$440,000 \)
• Operating Income: \( \$1,100,000 \)

State the operating leverage formula

Operating leverage (specifically, the degree of operating leverage) measures how sensitive net operating income is to percentage changes in sales volume. It is calculated as:

$$ \text{Operating Leverage} = \frac{\text{Contribution Margin}}{\text{Operating Income}} $$

Calculate the operating leverage

Substitute the given values into the formula:

$$ \text{Operating Leverage} = \frac{1,540,000}{1,100,000} = 1.4 $$

Round the final result

The calculated value is exactly \( 1.4 \). Rounded to one decimal place, the value remains \( 1.4 \).

Answer:

Determine Haywood Co.'s operating leverage. Round your answer to one decimal place.
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