Trident Food Corporation generated the following income statement for the most recent fiscal year:

Sales revenues $150,000
Variable cost of sales (120,000)
Gross profit 30,000
Fixed operating costs (10,000)
Net operating income (EBIT) $20,000

What is the degree of operating leverage (DOL) for Trident Food?

Question

Trident Food Corporation generated the following income statement for the most recent fiscal year:

Sales revenues                                    $150,000
Variable cost of sales                          (120,000)
Gross profit                                            30,000
Fixed operating costs                           (10,000)
Net operating income (EBIT)             $20,000

What is the degree of operating leverage (DOL) for Trident Food?

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as: DOL = % Change in EBIT / % Change in Sales = Contribution Margin / EBIT. Here, Contribution Margin = Sales - Variable Costs = $150,000 - $120,000 = $30,000. EBIT = $20,000. Therefore, DOL = $30,000 / $20,000 = 1.5×.

Trident Food Corporation Generated the Following Income Statement for the Most