Asked Nov 18, 2019

Operating Leverage

Haywood Co. reports the following data:

Sales $6,160,000
Variable costs (4,620,000)
Contribution margin $1,540,000
Fixed costs (440,000)
Operating income $1,100,000

Determine Haywood Co.’s operating leverage. Round your answer to one decimal place.


Expert Answer

Step 1

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Degree of Operating Leverage (DOL): The degree of operating leverage is evaluated by dividing the total contribution margin by the operating income of the company Use the following formula to calculate the degree of operating leverage: Total contribution margin DOL Operating income

Step 2

Determine the operating levera...


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Total contribution margin Operating income Operating leverage $1,540,000 S1,100, 000 =1.4


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