The fixed costs of a project are $6,000. The depreciation expense is $4,500 and the operating cash flow is $18,000. What is the degree of operating leverage for this project?
A) 1.33
B) 1.44
C) 1.50
D) 2.25
E) 3.00

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as 1 + (Fixed Costs / Operating Cash Flow). Here, DOL = 1 + ($6,000 / $18,000) = 1 + 0.33 = 1.33.

The Fixed Costs of a Project Are $6,000