Francois French manufactures cheese, which he normally sells at €20/kg, on which sales commission of 5% is paid. Plant capacity is 7,500 kg/month. Income tax is levied at 30%.
If sales are 5,000 kgs, which of the following is true?
A. Total contribution margin is €50,000
B. Ratio of total contribution margin to net income before taxes is 3.57
C. Taxes payable are €4,200
D. Operating leverage is 42%
E. All of the above
E. All of the above
Ratio of total contribution margin to net income before taxes = €50,000/€14,000 = 3.57
Operating leverage = Total fixed cost/Total cost = €36,000/[5,000 kgs × €10 + €36,000] = 42%.
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