Question

Mercantile corporation has sales of $2,000,000, variable costs of $1,100,000, and fixed costs of $750,000. mercantile’s degree of operating leverage is

Answer 1

The degree of operatingleverage is calculated by the formular
(sales - variable cost) / (sales - fixed cost - variable cost).
In the given question,
sales = $2,000,000
variable cost = $1,100,000
fixed cost = $750,000

The degree of operating leverage is (2,000,000 - 1,100,000) / (2,000,000 - 750,000 - 1,100,000) = 900,000 / 150,000 = 6.

Therefore, the degree of operating leverage is 6.