Alpha Corporation reported the following data for its most recent year: sales, $500,000; variable expenses, $300,000; and fixed expenses, $150,000. The company's degree of operating leverage is:
A)10
B)2
C)4
D)2.5

Question

Quizplus · Accepted Answer

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

Contribution margin = sales - variable expenses = $500,000 - $300,000 = $200,000

Net operating income = sales - variable expenses - fixed expenses = $500,000 - $300,000 - $150,000 = $50,000

Therefore, DOL = $200,000 / $50,000 = 4.

Alpha Corporation Reported the Following Data for Its Most Recent