Bois Corporation has provided its contribution format income statement for January. The degree of operating leverage is closest to:

Question

Bois Corporation has provided its contribution format income statement for January.  The degree of operating leverage is closest to:

Quizplus · Accepted Answer

The formula for operating leverage is Contribution Margin / Net Operating Income. We can calculate contribution margin by subtracting total variable expenses from total sales: 
Contribution Margin = $380,000 - ($228,000 + $48,000) = $104,000 
Net Operating Income = $104,000 - $60,000 = $44,000

Using the above formula, we can calculate the degree of operating leverage for Bois Corporation as: 
DOL = ($104,000 / $44,000) = 2.364

However, the question is asking for the degree of operating leverage closest to one of the given options. The closest option to 2.364 is D) 3.66.

Bois Corporation Has Provided Its Contribution Format Income Statement for January