Question

Bristo Corporation has sales of 1,900 units at $50 per unit. Variable expenses are 20% of the selling price. If total fixed expenses are $66,000, the degree of operating leverage is:

Answer 1

Answer: 7.6

Explanation:

Degree of operating leverage (DOL) = contribution margin / operating income

- contribution margin = sales - variable cost = [(1900 x $50) - (1900 x $50 x 20%)] = $95,000 - $19,000 = $76,000

- operating income = contribution margin - fixed expenses = $76,000 - $66,000 = $10,000

DOL = $76,000 / $10,000 = 7.6