The Solemn Company Has an Operating Leverage of 2

question 84

Multiple Choice

The Solemn Company has an operating leverage of 2. Sales for 2014 are $100,000 with a contribution margin of $50,000. Sales are expected to be $150,000 in 2015. Operating income for 2015 can be expected to increase by what amount over 2014?

• A) $50,000
• B) $25,000
• C) 200%
• D) 40%

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Definitions:

Factory Overhead Costs

Indirect manufacturing expenses that are not directly tied to the production of goods, such as utilities, maintenance, and managerial salaries.

Direct Labor Hours

Direct Labor Hours are the total time workers who are directly involved in the manufacturing process spend on producing goods.

Factory Overhead

All indirect costs associated with manufacturing, excluding direct materials and direct labor costs.

Work in Process

Goods in the manufacturing process that are not yet completed, representing a portion of inventory that is between raw materials and finished goods.