Question

Alpha Corporation reported the following data for its most recent year: sales, $660,000; variable expenses, $360,000; and fixed expenses, $225,000. The company's degree of operating leverage is closest to___________.

Answer 1

Degree of Operating Leverage = Contribution / Operating Profit

Contribution = Sales - Variable expenses = 660000 - 360000 = $ 300000

Operating Profit = Contribution - Fixed expenses = 300000 - 225000 = $ 75000

Degree of Operating Leverage = 300000 / 75000 = 4

Conclusion:- Degree of Operating Leverage = 4