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18 December, 17:16

Turner Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000 sales level, net operating income at the $150,000 sales level must equal: Group of answer choices

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  1. 18 December, 17:26
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    Net operating income = $1,875

    Explanation:

    The operating leverage is the ratio of Contribution to Net Operating Income. It is used to analyse the cost structure of a business to determine how much of its total cost is fixed.

    It is computed as follows:

    Operating leverage = Contribution/Net operating income

    Contribution = Contribution margin * Sales revenue

    = 15% * $150,000

    = $22,500

    Substitute this into the operating leverage equation

    12 = 22,500 / y

    y = 22,500/12

    y = 1,875

    Net operating income = $1,875
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