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    Question

    Sales = ₹200 lakhs, Variable cost = ₹120 lakhs,

    Fixed cost = ₹30 lakhs Interest = ₹10 lakhs Calculate (i) Operating Leverage and (ii) Financial Leverage.
    A 1.6 and 1.25 Correct Answer Incorrect Answer
    B 2.0 and 2.0 Correct Answer Incorrect Answer
    C 3.0 and 1.5 Correct Answer Incorrect Answer
    D 2.5 and 2.0 Correct Answer Incorrect Answer
    E 1.8 and 1.4 Correct Answer Incorrect Answer

    Solution

    Contribution = Sales – VC = ₹80L EBIT = Contribution – FC = ₹80 – ₹30 = ₹50L Operating Leverage = Contribution / EBIT = 80 / 50 = 1.6 Financial Leverage = EBIT / EBT = 50 / (50 – 10) = 50/40 = 1.25

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