Faust Corporation has provided its contribution format income statement for August.
-The degree of operating leverage is closest to:

Question

Faust Corporation has provided its contribution format income statement for August. 
-The degree of operating leverage is closest to:

Quizplus · Accepted Answer

Degree of operating leverage (DOL) = Contribution margin / Net operating income

Contribution margin = Sales - Variable expenses
= $275,000 - $192,500
= $82,500

Net operating income = $15,000

DOL = $82,500 / $15,000= 5.5

Therefore, the degree of operating leverage is closest to 7.21 (since it is not listed as an option, we would choose the closest answer, which is D at 5.5).

Faust Corporation Has Provided Its Contribution Format Income Statement for August