Bristo Corporation has sales of 2,000 units at $35 per unit. Variable expenses are 40% of the selling price. If total fixed expenses are $22,000, the degree of operating leverage is:

Question

Quizplus · Accepted Answer

Degree of operating leverage (DOL) = Contribution Margin / Net Operating Income

Contribution margin = Sales - Variable Expenses
Variable expenses = 40% of sales = 0.4*$35*2000 = $28,000

Contribution margin = $70,000 - $28,000 = $42,000

Net Operating Income = Sales - Variable Expenses - Fixed Expenses
Net Operating Income = $70,000 - $28,000 - $22,000 = $20,000

DOL = $42,000 / $20,000 = 2.10

Bristo Corporation Has Sales of 2,000 Units at $35 Per