Question

If Farmer Jane has a net operating income of $25,000 with a contribution margin of $51,000, based on 100,000 in sales per year, what is her degree of operating leverage?

a) 3.00
b) 4.00
c) 196
d) 204

Answer 1

The degree of operating leverage (DOL) for Farmer Jane is calculated to be 2.04, which is not among the provided choices. This suggests there might be a mistake in the question or answer options.

Step-by-step explanation:

To find Farmer Jane's degree of operating leverage (DOL), we use the formula:

DOL = Contribution Margin / Net Operating Income

From the information given, Farmer Jane has:

• Contribution Margin = $51,000
• Net Operating Income = $25,000

Substituting these values into the formula provides:

DOL = $51,000 / $25,000

DOL = 2.04

This value is not one of the options provided, implying a possible mistake in the question or the multiple-choice answers. However, the closest correct choice that reflects a proper calculation of operating leverage would be:

b) 2.04 (not listed)

Therefore, given the options, the final answer to Farmer Jane's degree of operating leverage could be a typographical error and none of the choices accurately depict the computed value.