The Klein Company reports the following data Sales Variable

The Klein Company reports the following data: Sales Variable costs Fixed costs $980,000 500,000 350,000 Determine Klein Company\'s operating leverage. Round your answer to two decimal places.

Solution

Klein Company\'s operating leverage is 3.69

The formula to calculate Operating Leverage is

Operating Leverage = Contribution margin / Net Operating Income

Contribution margin = Sales - Variable costs

Sales = $980,000

Variable Costs = $500,000

Contribution margin = $980,000 - $500,000

Contribution margin = $480,000

Now we need to calculate Net Operating Income

Net Operating Income = Sales - Variable costs - Fixed costs

Net Operating Income = $980,000 - $500,000 - $350,000

Net Operating Income = $130,000

Therefore, Operating Leverage = Contribution margin / Net Operating Income

Operating Leverage = $480,000 / $130,000

Operating Leverage = 3.69 (rounded two decimal places)