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"La Caravana" manufactures board games and sells 11,000 units annually. Each game produced has a variable...

"La Caravana" manufactures board games and sells 11,000 units annually. Each game produced has a variable operating cost of $ 60 and sells for $ 80. Fixed operating costs are $ 90,000. The company has annual interest expenses of $ 30,000, preferred stock dividends of $ 12,000, and a 30% tax rate.

Use the Degree of Operating Leverage (DOL) formula to calculate DOL ?

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Answer #1
Income Statement
Sales [11,000 x $80.00]           880,000
Less: Variable Operating Costs [11,000 x $60.00]           660,000
Contribution Margin           220,000
Less: Fixed Operating Costs             90,000
Less: Interest Expenses             30,000
Net Operating Income           100,000
Degree of Operating Leverage (DOL) = Contribution Margin / Net Operating Income
Degree of Operating Leverage (DOL) = $220,000 / $100,000
Degree of Operating Leverage (DOL) = 2.20 Times
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