The Degree of Operating Leverage for Geesling Company Is 8

question 119

Multiple Choice

The degree of operating leverage for Geesling Company is 8.0 at 80,000 units of sales.At 80,000 units of sales,the net profit is $10,000.If the sales volume increases to 90,000 units,what is the net profit?

• A) $12,000
• B) $20,000
• C) $22,222
• D) $80,000

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Definitions:

Contribution Margin Ratio

The percentage of sales revenue that exceeds variable costs, indicating the portion of sales available to cover fixed costs and generate profit.

Fixed Costs

Expenses that do not fluctuate with changes in production level or sales volume, such as lease payments, salaries, and insurance.

Operating Leverage

A financial concept that measures the extent to which a firm can increase operating income by increasing revenue, highlighting the impact of fixed versus variable costs.

Break-even Point

The point at which total costs equal total revenue, meaning the business makes neither a profit nor a loss.