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The following information was drawn from the records of Calico Company Income Statement Sales Revenue (170 @ $520 per unit) $ 88,400 Cost of Goods Sold: Variable (170 @ $220 per unit) (37,400 ) Fixed (17,000 ) Gross Margin 34,000 Sales Commissions (170 @ $40) (6,800 ) Depreciation (2,800 ) Net Income $ 24,400 Based on this information the magnitude of operating leverage is approximately (round to nearest hundredth):____________

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Answer:

1.50.

Explanation:

The magnitude of operating leverage is identifies the fixed cost of the company. The higher the fixed cost more will be the magnitude of operating leverage.

The magnitude of operating leverage can be determined from formula,

Contribution margin / Net operating Income

For contribution margin we use formula

CM = Net sales - Total Variable cost

Contribution Margin = $88,400 - $37,400 = $51,000

The Magnitude of Operating leverage is $51,000 / $34,000

= 1.50.

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