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Degree of Operating Leverage Head-First Company plans to sell 5,000 bicyde helmets at $75 each in the coming year. Unit varia
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Answer #1

Degree of operating Leverage = Contribution Margin / Earnings before interest & Taxes

Contribution Margin = Selling price - Variable cost = $75 - $50 = $25 per unit

Total Contribution Margin = $25 per unit * 5,000 = $125,000

Operating Income =

Contribution Margin = $125,000

Less: Fixed Costs = ($49,500)

Operating Income = $75,500

Degree of operating Leverage = $125,000 / $75,500

Degree of operating Leverage = 1.6556

or Degree of operating Leverage = 1.7

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