Brandi's Bakery's income statement for last month is given below.What is Brandi's degree of operating leverage?

Question

Quizplus · Accepted Answer

Degree of Operating Leverage (DOL) = Contribution Margin / Net Income 
Contribution Margin = Total Sales - Total Variable Costs = $70,000 - $28,000 = $42,000 
Net Income = $7,000 
DOL = $42,000 / $7,000 = 6 
Therefore, the degree of operating leverage is 6 or 3.5 times (rounded to the nearest tenth). The closest option is C, 3.5.

Brandi's Bakery's Income Statement for Last Month Is Given Below