Assume total sales of $800,000, total variable costs of $400,000, and total fixed costs of $300,000.Of these amounts, $200,000 of the variable costs are product costs, and $100,000 of the fixed costs are period costs.What is the degree of operating leverage?

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Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as: DOL = Contribution Margin / Net Operating Income. Contribution Margin = Sales - Variable Costs = $800,000 - $400,000 = $400,000. Net Operating Income = Sales - Variable Costs - Fixed Costs = $800,000 - $400,000 - $300,000 = $100,000. Therefore, DOL = $400,000 / $100,000 = 4.00.

Assume Total Sales of $800,000, Total Variable Costs of $400,000