Heather Hudson makes stuffed teddy bears. Recent information for her business follows:

Selling price per bear $ 35.50

Total fixed cost per month 1,450.00

Variable cost per bear 16.50

Determine the degree of operating leverage if she sells 390 bears this month.

Degree of Operating Leverage =  1.24

Explanation:

given data

Selling price =  $35.50  per bear

Total fixed cost = 1,450.00  per month

Variable cost = 16.50 per bear

sells = 390 bears

solution

we get here Degree of Operating Leverage that is express as

Degree of Operating Leverage = Contribution Margin ÷ Operating Income   .................1

and

Contribution Margin = Sales - Variable cost  .................2

Contribution Margin = (390 bears × $35.50) - (390 bears × $16.50)

Contribution Margin = $7410

and

Operating Income = Sales - Variable cost - Fixed Costs ................3

Operating Income = (390 bears × $35.50) - (390 bears × $16.50) - $1450

Operating Income = $5960

so put value in equation 1

Degree of Operating Leverage =  

Degree of Operating Leverage =  1.24  

the net differential profit from the sell alternative is 15,000

Explanation:

25,000 x (1 -  5% commision ) = 25,000 x .95 = 23,750

48,750

40,000 total cost over the lease. (40,000x5)

 8,750

Differential cost= 23,750 - 8,750 = 15000