Question

Alpha Corporation reported the following data for its most recent year: sales, $700,000; variable expenses, $490,000; and fixed expenses, $140,000. The company's degree of operating leverage is closest to

Answer 1

Answer:

3

Explanation:

The computation of the degree of operating leverage is shown below:

= (Sales - Variable expense) ÷ (Sales - Variable expense - Fixed expense)

= ($700,000 - $490,000) ÷ ($700,000 - $490,000 - $140,000)

= $210,000 ÷ $70,000

= 3

The (Sales - Variable costs) = Contribution margin

The  (Sales - Variable costs - Fixed costs) = EBIT i.e Earnings before interest and taxes