Question

"Alpha Corporation reported the following data for its most recent year: sales, $660,000; variable expenses, $360,000; and fixed expenses, $225,000. The company's degree of operating leverage is closest to:"

Answer 1

Answer:

The company degree of operating leverage is 4

Explanation:

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

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

= ($660,000 - $360,000) ÷ ($660,000 - $360,000 - $225,000)

= $300,000 ÷ 75,000

= 4

where,

The (Sales - Variable costs) = Contribution margin

The  (Sales - Variable costs - Fixed costs) = EBIT