Question

Alpha Corporation reported the following data for its most recent year: sales, $670,000; variable expenses, $420,000; and fixed expenses, $200,000. The company's degree of operating leverage is closest to:

Answer 1

Answer:

the degree of operating leverage is 5

Explanation:

The computation of the degree of operating leverage is given below:

= Contribution margin ÷ EBIT

= (Sales - Variable expense) ÷ (Sales - Variable expense - Fixed expense)

= ($670,000 - $420,000) ÷ ($670,000 - $420,000 - $200,000)

= $250,000 ÷ $50,000

= 5

Hence, the degree of operating leverage is 5