Question

Kendall Company has sales of 1,000 units at $60 a unit. Variable expenses are 30% of the selling price. If total fixed expenses are $30,000. The degree of operating leverage is

Answer 1

There are several ways to compute the degree of operating leverage (DOL). A fairly intuitive approach is expressed below.

DOL = (sales - variable costs) / (sales - variable costs - fixed costs)

For Kendall, the DOL is computed as follows:

DOL = (1,000 * $60 - 1,000 * $60 * .30) / (1,000 * $60 - 1,000 * $60 * .30 - $30,000) = 3.5

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