Asked by Katherinne Gamez on May 07, 2024
Verified
Bois Corporation has provided its contribution format income statement for January. The degree of operating leverage is closest to:
A) 0.11
B) 9.37
C) 0.27
D) 3.66
Degree of Operating Leverage
A financial metric that measures the sensitivity of a company's operating income to its sales volume.
- Comprehend and compute the degree of operating leverage along with its influence on net operating income.
Verified Answer
ME
Mohamed ElkasasMay 14, 2024
Final Answer :
D
Explanation :
The formula for operating leverage is Contribution Margin / Net Operating Income. We can calculate contribution margin by subtracting total variable expenses from total sales:
Contribution Margin = $380,000 - ($228,000 + $48,000) = $104,000
Net Operating Income = $104,000 - $60,000 = $44,000
Using the above formula, we can calculate the degree of operating leverage for Bois Corporation as:
DOL = ($104,000 / $44,000) = 2.364
However, the question is asking for the degree of operating leverage closest to one of the given options. The closest option to 2.364 is D) 3.66.
Contribution Margin = $380,000 - ($228,000 + $48,000) = $104,000
Net Operating Income = $104,000 - $60,000 = $44,000
Using the above formula, we can calculate the degree of operating leverage for Bois Corporation as:
DOL = ($104,000 / $44,000) = 2.364
However, the question is asking for the degree of operating leverage closest to one of the given options. The closest option to 2.364 is D) 3.66.
Learning Objectives
- Comprehend and compute the degree of operating leverage along with its influence on net operating income.
Related questions
Sales at East Corporation Declined from $100,000 to $80,000, While ...
Serfass Corporation's Contribution Format Income Statement for July Appears Below ...
Bendel Inc ...
Alpha Corporation Reported the Following Data for Its Most Recent ...
Lofft Corporation Has Provided the Following Contribution Format Income Statement ...