Seiersen Corporation's contribution format income statement for February appears below: The degree of operating leverage is closest to:
A)10.98
B)0.22
C)0.09
D)4.48

Question

Seiersen Corporation's contribution format income statement for February appears below:  The degree of operating leverage is closest to:
A)10.98 
B)0.22 
C)0.09 
D)4.48

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as contribution margin divided by net operating income.

DOL = Contribution Margin/Net Operating Income

From the income statement, we can calculate the contribution margin for February as:

Sales - Variable expenses = Contribution margin 
$325,000 - $150,000 - $75,000 - $20,000 = $80,000

Net operating income can be found by subtracting fixed expenses from the contribution margin:

$80,000 - $60,000 = $20,000

Therefore, DOL = $80,000 / $20,000 = 4

So the closest choice is D (4.48)

Seiersen Corporation's Contribution Format Income Statement for February Appears Below