Asked by Michelle Carrey on Jun 28, 2024
Verified
The company's degree of operating leverage is closest to:
A) 55.68
B) 3.65
C) 7.73
D) 12.76
Operating Leverage
A measure of how revenue growth translates into growth in operating income, highlighting the impact of fixed costs.
Degree
A level of qualification, achievement, or temperature that denotes status, extent, or intensity. In academic contexts, it often refers to the certification received upon completing a course of study at a college or university.
- Acquire knowledge about the role of the degree of operating leverage in influencing net operating income with variations in sales.
Verified Answer
Contribution margin = Sales - Variable expenses = $70,000 - ($22,500 + $21,000 + $6,000 + $7,500) = $13,000
Operating income = Sales - Variable expenses - Fixed expenses = $70,000 - ($22,500 + $21,000 + $6,000 + $7,500) - $7,000 = $6,000
DOL = $13,000 / $6,000 = 2.1667
Therefore, the closest option is D)12.76 which is rounded to two decimal places.
= $4,176,000 - ($2,871,000 + $348,000)
= $4,176,000 - $3,219,000 = $957,000
Degree of operating leverage = Contribution margin ÷ Net operating income
= $957,000 ÷ $75,000 = 12.76
Reference: CHO6-Ref17
A manufacturer of cedar shingles has supplied the following data:
Learning Objectives
- Acquire knowledge about the role of the degree of operating leverage in influencing net operating income with variations in sales.
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