Clockworks Co. reports the following data for the current year:Units sold…………………………………………1,200Unit sales price……………………………………$30Unit variable cost…………………………………$10Total fixed cost……………………………………$18,000Required:(a) Calculate Clockworks' pretax income.(b) Calculate Clockworks' degree of operating leverage.
What will be an ideal response?
(a)
| Sales (1,200 units ? $30 each)…………………… | $36,000 |
| Variable costs (1,200 ? $10)……………………… | (12,000) |
| Contribution margin……………………………… | $24,000 |
| Fixed costs………………………………………… | (18,000) |
| Income before taxes……………………………… | $ 6,000 |
(b) Degree of operating leverage = $24,000/$6,000 = 4
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