Consider a business that has a variable cost per unit of $4, a sales price per unit of $8, and fixed operating costs of $15,000. The degree of operating leverage at 20,000 units produced and sold is closest to:
A) 0.81
B) 1.00
C) 1.23
D) 2.50

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. Plugging in the given values: DOL = 20,000($8 - $4) / [20,000($8 - $4) - $15,000] = 80,000 / 65,000 = 1.23.

Consider a Business That Has a Variable Cost Per Unit