Alpha Corporation reported the following data for its most recent year: sales, $1,000,000; variable expenses, $600,000; and fixed expenses, $300,000. The company's degree of operating leverage is closest to:
A) 0.25
B) 2.0
C) 4.0
D) 3.3

Question

Quizplus · Accepted Answer

Degree of operating leverage (DOL) = Contribution margin / Net income

Contribution margin = Sales - Variable expenses
= $1,000,000 - $600,000
= $400,000

Net income = Sales - Variable expenses - Fixed expenses
= $1,000,000 - $600,000 - $300,000
= $100,000

DOL = $400,000 / $100,000 = 4.0

Alpha Corporation Reported the Following Data for Its Most Recent