Assume sales were 10,000 units:

1. Determine the contribution margin. Illustrate the calculations.

2. Calculate operating leverage. Illustrate the calculations.

3. Using the degree of operating leverage, determine the effect on net income if sales decrease 10%

quantities per unit	quantities totals
Sale price per unit ( Sale price per unit )	$80.00
Fixed costs ( Fixed costs ):
administrative salaries		$ 180,000
rent expense		90.000
Depreciation expense ( Depreciation expense )		30,000
Total fixed costs ( Total fixed costs )		$300,000
Variable costs ( Variable costs ) :
Raw material ( raw material )	$ 15.00
Labor ( Direct labor )	22.00
Indirect costs ( variable overhead )	11.00
Total Variable Costs ( Total Variable Costs )	$ 48.00

The manager of the Buena Vista Company wants to know the company's contribution margin and operating leverage and provides him with the above data.

Answer rating: 100% (QA)

1 Determining the Contribution Margin Contribution Margin per unit Sale price per unit Variable cost ... View the full answer