Question

Arpana Pvt Ltd provide following information:
Sales = 10,00,000
Variable cost = 7,00,000
Fixed cost = 2,00,000
Debentures at $10\%$ = 5,00,000
What is the operating leverage of the company?

• A. 2
• B. 3
• C. 4
• D. 5

Answer 1

Answer: (B)

3

Operating leverage = $\frac{Contribution}{EBIT}$
= $\frac{Rs.3,00,000}{Rs.1,00,000}$
= 3

Hence, option (B) is the correct answer.