Question

U.S. Steal has the following income statement data: Units Sold Total Variable Costs Fixed Costs Total...

U.S. Steal has the following income statement data:

Units
Sold
Total
Variable
Costs
Fixed
Costs
Total
Costs
Total
Revenue
Operating
Income
(Loss)
105,000 $ 210,000 $ 80,000 $ 290,000 $ 420,000 $ 130,000
125,000 250,000 80,000 330,000 500,000 170,000

The top row of the table has the beginning values and the bottom row of the table has the ending values.

a. Compute the degree of operating leverage (DOL) based on the formula below. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

DOL = Percent change in operating income
Percent change in units sold
Degree of operating leverage


b. Recompute DOL using the formula given below. There may be a slight difference due to rounding. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

DOL = Q(P − VC)
Q(P − VC) − FC


Q represents beginning units sold (all calculations should be done at this level).
P can be found by dividing total revenue by units sold.
VC can be found by dividing total variable costs by units sold.

Degree of operating leverage

Homework Answers

Answer #1

DOL

% change in operating income/ percent change in units sold

30.77%/19.05%

1.62

% change in operating income

(170000-130000)/130000

30.77%

% change in units sold

(125000-105000)/105000

19.05%

beginning

Year end

total evenue

420000

500000

quantity

105000

125000

selling price per unit

4

4

total variable cost

210000

250000

quantity

105000

125000

variable cost per unit

2

2

fixed cost

80000

80000

DOL

(125000*(4-2)) / (125000*(4-2)-80000)

1.470588

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