Sales Rs 50 000 Variable Cost Rs 25 000 Fixed Cost Rs 15 000 Interest Charges Rs 5 000 Operating Lev...........

Costing - Phase (I & II) Methods of Costing

Sales: Rs. 50,000/-

Variable Cost: Rs. 25,000/-

Fixed Cost: Rs. 15,000/-

Interest Charges: Rs. 5,000/-

Operating Leverage, Financial Leverage and Combined Leverage will be:

2.8; 2.5; 5

2.4; 2.1; 5.1

2.5; 2; 5

None of the above

Operating leverage: Contribution /EBIT

= Sales – Variable Cost/Sales – Variable Cost – Fixed Cost

= (50,000 – 25,000)/(50,000- 25,000 – 15,000)= 2.5

Financial Leverage= EBIT/EBIT-Interest

= (50,000- 25,000 – 15,000)/ (50,000- 25,000 – 15,000 – 5,000) = 2

Combined Leverage= Operating leverage x Financial Leverage

= 2.5 x 2 = 5

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