The following income statement is provided for Vargas, Inc. What is this company's magnitude of operating leverage? Assume that net income is equal to operating income. Sales revenue (2,500 units x S60 per unit)Cost of goods sold (varable; 2,500 units x $20 per unit)Cost of goods sold (fixed)Gross marginAdministrativesalariesDepreciationSupplies (2,500 units x $4 per unit)Net incomeSS150,000(50,000)(8,000)92,000(42,000)(10,000)(10,000)30,000

FORMULA Magnitude of Operating leverage= Contribution ÷Net income Where Contribution = sales-…

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Business

Accounting

What is this company's magnitude of operating leverage?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The following income statement is provided for Vargas, Inc.

What is this company's magnitude of operating leverage? Assume that net income is equal to operating income.

Sales revenue (2,500 units x S60 per unit)
Cost of goods sold (varable; 2,500 units x $20 per unit)
Cost of goods sold (fixed)
Gross margin
Administrative
salaries
Depreciation
Supplies (2,500 units x $4 per unit)
Net income
S
S
150,000
(50,000)
(8,000)
92,000
(42,000)
(10,000)
(10,000)
30,000

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