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May Clothing is a retail men’s clothing store. May’s variable cost is $64.60 per shirt and...

May Clothing is a retail men’s clothing store. May’s variable cost is $64.60 per shirt and the sales price is $129.20 per shirt. May plans to sell 160,000 shirts for the year and, at this level, would generate a before-tax profit of $3,040,000. What is the degree of operating leverage (DOL) at this volume level? (Round your answer to 1 decimal place.)

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Answer #1

Degree of operating leverage

= Contribution margin/Net operating income

= [(129.20-64.60) 160,000] / 3,040,000

= 10,336,000/3,040,000

= 3.4
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