Question

Below is an income statement for ABC Company for 2014:

Sales $300,000

Variable costs (150,000)

Contribution margin $150,000

Fixed costs (100,000)

Net Income $50,000

1) The degree of leverage (DOL) for ABC Company is equal to what amount?

A. 1.0
B. 2.0
C. 3.0
D. 4.0

Answer 1

The degree of leverage (DOL) for ABC Company is undefined or N/A.

Step-by-step explanation:

The degree of leverage (DOL) measures the sensitivity of a company's net income to changes in its sales. It is calculated by dividing the percentage change in net income by the percentage change in sales. To calculate the DOL, we need to find the percentage change in net income and the percentage change in sales.

1. Percentage change in net income: ($50,000 - $0) / $0 = N/A
2. Percentage change in sales: ($300,000 - $0) / $0 = N/A
3. DOL = percentage change in net income / percentage change in sales = N/A / N/A = N/A

Therefore, the degree of leverage (DOL) for ABC Company is undefined or N/A.