Horner Company
Horner Company manufactures a single product.Each unit sells for $15.The firm's projected costs are listed below:
$\begin{array}{lc}
\text { Variable costs per unit: } & \
\text { Prochuction } & \$ 5 \
\text { SG\&A } & \$ 1 \
\text { Fixed costs: } & \
\text { Prochuction } & \$ 40,000 \
\text { SG\&A } & \$ 60,000\
\text { Estimated volume } & 20,000 \text { units }
\end{array}$

Refer to Horner Company.What is Horner's projected degree of operating leverage for the current year?

Question

Horner Company
Horner Company manufactures a single product.Each unit sells for $15.The firm's projected costs are listed below:
$\begin{array}{lc}
\text { Variable costs per unit: } & \
\text { Prochuction } & \$ 5  \
\text { SG\&A } &  \$ 1 \
\text { Fixed costs: } &  \
\text { Prochuction } & \$ 40,000 \
\text { SG\&A } & \$ 60,000\
\text { Estimated volume } & 20,000 \text { units }
\end{array}$

Refer to Horner Company.What is Horner's projected degree of operating leverage for the current year?

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as: $DOL = \frac{Q(P-V)}{Q(P-V) - F}$, where $Q$ is the quantity sold, $P$ is the price per unit, $V$ is the variable cost per unit, and $F$ is the total fixed costs. Here, $P = \$15$, $V = \$5 + \$1 = \$6$, $F = \$40,000 + \$60,000 = \$100,000$, and $Q = 20,000$. Plugging these values into the formula gives: $DOL = \frac{20,000(\$15-\$6)}{20,000(\$15-\$6) - \$100,000} = \frac{20,000(\$9)}{20,000(\$9) - \$100,000} = \frac{180,000}{180,000 - 100,000} = \frac{180,000}{80,000} = 2.25$.

Horner Company Horner Company Manufactures a Single Product Refer to Horner Company

Horner Company
Horner Company Manufactures a Single Product Refer to Horner Company