If a company produces and sells 100 million units per year, has a contribution margin of $5 per unit, and has $300 fixed operating costs, its degree of operating leverage is closest to:
A) 0.6.
B) 2.5.
C) 3.3.

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as: DOL = Q(P-V) / [Q(P-V) - F], where Q = quantity sold, P = price per unit, V = variable cost per unit, and F = fixed costs. The contribution margin (P-V) is given as $5 per unit. Therefore, DOL = 100 million * $5 / [100 million * $5 - $300 million] = $500 million / $200 million = 2.5.

If a Company Produces and Sells 100 Million Units Per