The degree of operating leverage for Murphy Company is 8.0 at 80,000 units of sales.At 80,000 units of sales,the net profit is $10,000.If the sales volume decreases to 72,000 units,what is the net profit?
A) $2,000
B) $8,000
C) $10,000
D) $18,000

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) indicates how a percentage change in sales volume will affect profits. A DOL of 8.0 means that a 10% decrease in sales volume (from 80,000 to 72,000 units, which is a 10% decrease) will result in an 80% decrease in net profit. Therefore, the net profit will decrease from $10,000 to $2,000.

The Degree of Operating Leverage for Murphy Company Is 8