SOLVED : articlewritingcafe.net –

Suppose that Bill’s Briefcases has budgeted next year’s sales at 5,000

units. Compute Bill’s degree of operating leverage. Recall that P =

$200, V = $80, F = $360,000, and the margin of safety percentage at

5,000 units is 40%.

 

First, compute contribution margin and profit at 5,000 units:

Profit = $600,000 – $360,000 = $240,000

$600,000 Degree of operating leverage = = 2.5 $240,000

Contribution margin = ($200 – $80) x 5,000 = $600,000

1

or, degree of operating leverage = = 2.5

40%

$360,000 or, degree of operating leverage = + 1 = 2.5 $240,000