Brandy's Books is operating with a degree of operating leverage (DOL) of 5.0 for last month's results based on revenues of $7,000 and variable costs of $3,500. What were total fixed costs last month?
A) $2,750
B) $2,800
C) $2,900
D) $2,500

Question

Quizplus · Accepted Answer

The DOL is calculated as contribution margin divided by operating income. Contribution margin = Revenues F1F1F1S1?F1F1F10 Variable costs, thus $7,000 F1F1F1S1?F1F1F10 $3,500 = $3,500. A contribution margin of $3,500 divided by a DOL of 5 equals an operating income of $700. Fixed costs would thus be $3,500 F1F1F1S1?F1F1F10 $700 = $2,800.

Brandy's Books Is Operating with a Degree of Operating Leverage