If the company has sales of Rs. 82.5 Lacs, variable cost Rs. 46.2 Lac, fixed cost Rs 6.6 lac. Operating leverage of firm.Options :3.562.451.224.98
Question
If the company has sales of Rs. 82.5 Lacs, variable cost Rs. 46.2 Lac, fixed cost Rs 6.6 lac. Operating leverage of firm.Options :3.562.451.224.98
Solution
To calculate the operating leverage of the firm, we can use the formula:
Operating Leverage = Contribution Margin / Operating Income
First, we need to calculate the contribution margin. The contribution margin is the difference between sales and variable costs.
Contribution Margin = Sales - Variable Costs Contribution Margin = Rs. 82.5 Lacs - Rs. 46.2 Lacs Contribution Margin = Rs. 36.3 Lacs
Next, we need to calculate the operating income. The operating income is the difference between contribution margin and fixed costs.
Operating Income = Contribution Margin - Fixed Costs Operating Income = Rs. 36.3 Lacs - Rs. 6.6 Lacs Operating Income = Rs. 29.7 Lacs
Now, we can calculate the operating leverage using the formula:
Operating Leverage = Contribution Margin / Operating Income Operating Leverage = Rs. 36.3 Lacs / Rs. 29.7 Lacs Operating Leverage = 1.22
Therefore, the operating leverage of the firm is 1.22.
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