The following income statement is provided for Fontana, Inc. What is this company\'s magnitude of operating leverage? 2.03 1.42 1.38 2.80 Solution Operating leverage = Contribution margin Net operating income Contribution = Sales revenue - Variable cost = $36,340 - $17,940 = $18,400 Hence operating leverage = $18,400/ 13,000 = 1.42 .

1. The following income statement is provided for Fontana, Inc.
What is this company's magnitude of operating leverage?
2.03
1.42
1.38
2.80
Sales Revenue (2,300 @ $15.80 a unit) $36,340
Variable Costs (2,300 @ $7.80 a unit) 17,940
Fixed Costs 5,400
Net Income $13,000
Solution
Operating leverage = Contribution margin
Net operating income
Contribution = Sales revenue - Variable cost
= $36,340 - $17,940
= $18,400
Hence operating leverage = $18,400/ 13,000
= 1.42