Sara Lee has noted that every time the sales quantity increases by 5 percent for a particular project, the operating cash flow for the project increases by 8 percent. What is the degree of operating leverage for this project if the contribution margin is $2.50?
A) .40
B) .63
C) .71
D) 1.40
E) 1.60

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as the percentage change in operating cash flow divided by the percentage change in sales quantity. Here, DOL = 8% / 5% = 1.60.

Sara Lee Has Noted That Every Time the Sales Quantity