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Asked Mar 5, 2019
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Sheridan Company has sales of $2200000, variable costs of $1200000, and fixed costs of $800000. Sheridan's degree of operating leverage is
1.25
0.83
5.00
0.78
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KI Your answer is incorrect. Try again. Sheridan Company has sales of $2200000, variable costs of $1200000, and fixed costs of $800000. Sheridan's degree of operating leverage is 1.25 0.83 5.00 0.78

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Expert Answer

Step 1

The degree of operating leverage is a financial ratio that measures the amount of change that takes place in operating income with respect to change in sales. The degree of operating leverage is used measure the operating risk which arises from variable and fixed cost.

A low DOL represents company’s variable costs are larger than its fixes cost and a high DOL represents company’s fixed cost are higher than its variable cost.

Step 2

                Sales Revenue                     = $2,200,000

    Less: Variable cost                        = $1,200,000

             Margin of contribution:     = $1,0...

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