Question

Alpha Corporation reported the following data for its most recent year: sales, $650,000; variable expenses, $500,000; and fixed expenses, $100,000. The company's degree of operating leverage is closest to:

Answer 1

Answer:

The company degree of operating leverage is 3

Explanation:

Degree of operating leverage= Contribution Margin / Net operating Income

When Contribution margin = Sales - Variable expenses= $650,000 - $500,000 = $150,000

Net operating income =  Sales - Variable expenses - Fixed expenses = $650,000 - $500,000 - $100,000 = $50,000

Thus, Degree of operating leverage= $150,000 / $50,000

= 3