Given the following information, what is the degree of operating leverage? Price = $40 per unit; variable cost = $20 per unit; fixed costs = $95,000 per year; depreciation = $35,000 per year; sales = 10,000 units per year. Ignore tax effects.
A) 0.9
B) 1.3
C) 1.5
D) 1.9
E) 2.4

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) is calculated as: DOL = Q(P - V) / [Q(P - V) - F], where Q = quantity sold, P = price per unit, V = variable cost per unit, and F = fixed costs (excluding depreciation since it's a non-cash expense and doesn't affect the calculation). Here, Q = 10,000 units, P = $40, V = $20, and F = $95,000. Plugging these into the formula gives: DOL = 10,000($40 - $20) / [10,000($40 - $20) - $95,000] = $200,000 / ($200,000 - $95,000) = $200,000 / $105,000 = 1.9.

Given the Following Information, What Is the Degree of Operating