The Dodge Corporation's variable expense ratio is 20%. If Dodge has sales of 2,500 units at...
The Dodge Corporation's variable expense ratio is 20%. If Dodge has sales of 2,500 units at $50 per unit and total fixed expenses are $90,000, the degree of operating leverage is:
A) 12.50
B) 10.00
C) 2.67
D) 2.50
Homework Answers
| Sales(2500*50) | 125,000 |
| Less:Variable expenses(125,000*20%) | 25,000 |
| Contribution margin | 100,000 |
| Less:Fixed cost | 90,000 |
| EBIT | 10,000 |
Degree of operating leverage=Contribution margin/EBIT
=(100,000/10,000)=10
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