Casey Business Consulting provides management consulting evaluations for clients at a price of $15,000 upon completion. Casey has variable costs of $8,000 per evaluation and fixed costs of $70,000 per month. Last month, Casey had an operating profit of $21,000. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Casey completed 13 evaluations last month. This is calculated by adding operating profit of $21,000 to fixed costs of $70,000 for a total of$91,000. Next, we solve for the contribution margin, by subtracting variable costs from revenue, or $15,000 F1F1F1S1?F1F1F10 $8,000 = $7,000. Thus, the number ofevaluations is solved as $91,000 ÷ 7,000 = 13. The degree of operating leverage (DOL) is calculated as contribution margin divided by operating income.Therefore, DOL is equal to $7,000 ÷ $21,000 = 0.33.

Casey Business Consulting Provides Management Consulting Evaluations for Clients at a Price