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Sagot :
The degree of operating leverage is [tex]0.83[/tex].
What is the degree of operating leverage?
- How much a company's operating income alters in reaction to a change in sales is measured by the level of operating leverage.
- Analysts can assess the effect of any change in sales on business earnings using the DOL ratio.
- Due to the high percentage of fixed expenditures in an organization with high operating leverage, a significant increase in sales may result in outsized changes in profitability.
Operating leverage formula:
[tex]\frac{FC}{TC} = \frac{FC}{FC+VC}[/tex]
Where FC is a fixed cost, TC is the total cost and VC is a variable cost.
Solution -
Contribution margin is $68,640 and pretax net income is $13,200.
So, applying the values in the formula we will get:
[tex]\frac{68,640}{13,200+68,640}[/tex]
[tex]0.83[/tex]
Therefore, the degree of operating leverage is [tex]0.83[/tex].
Know more about operating income here:
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