Question

Oslo Co prepared the following Contribution Format income statement based on sales volume of 1,000 units. (the relevant rage of production is 500 to 1500 units):

Sales 80,000
Var C 52,000
CM 28,000
Fixed 21,840
NOI 6,160

What is the degree of operating leverage?

Answer 1

The degree of operating leverage for Oslo Co is 4.55.

Step-by-step explanation:

The degree of operating leverage (DOL) measures the sensitivity of a company's operating income to changes in its sales volume. It is calculated by dividing the percentage change in operating income by the percentage change in sales volume. In this case, we can calculate the DOL based on the information provided in the question.

The contribution margin (CM) is calculated by subtracting variable costs from sales. In this case, the CM is $28,000. The fixed costs are $21,840. The sales volume is 1,000 units which generated sales of $80,000. Based on this information, we can calculate the DOL as follows:

DOL = CM / NOI = $28,000 / $6,160 = 4.55

Therefore, the degree of operating leverage for Oslo Co is 4.55.