The February contribution format income statement of Mcabier Corporation appears below: The degree of operating leverage is closest to:
A) 0.27
B) 6.79
C) 3.70
D) 0.15

Question

The February contribution format income statement of Mcabier Corporation appears below:  The degree of operating leverage is closest to:
A) 0.27 
B) 6.79 
C) 3.70 
D) 0.15

Quizplus · Accepted Answer

The formula for degree of operating leverage (DOL) is:

DOL = Contribution Margin / Operating Income

First, we need to calculate the contribution margin for Mcabier Corporation:

Contribution Margin = Total Sales - Variable Expenses
= $1,580,000 - ($307,000 + $745,000)
= $528,000

Next, we need to calculate the operating income:

Operating Income = Gross Profit - Operating Expenses
= ($1,580,000 - $1,052,000) - $216,000
= $312,000

Now, we can calculate the DOL:

DOL = Contribution Margin / Operating Income
= $528,000 / $312,000
= 1.69

Therefore, the closest answer choice is C) 3.70.

The February Contribution Format Income Statement of Mcabier Corporation Appears