Question

Jerry is a financial analyst at ABC Industries. These are his projections for the upcoming year:...

Jerry is a financial analyst at ABC Industries. These are his projections for the upcoming year:

Unit sales volume 1,096,000
Sale price per unit $103
Variable cost per unit $63
Fixed operating costs $17,717,000
Fixed financing expenses $4,687,000

Given this information, what is the projected degree of operating leverage (DOL) for ABC? (show your answer to two decimal places, e.g., 12.34)

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Answer #1
Ans. Degree of Operating Leverage 2.05
*Calculation:
Sales (1096000*103) 112888000
Less: Variable cost (1096000*63) -69048000
Contribution 43840000
Less: Fixed operating costs -17717000
Less: Fixed financing expenses -4687000
Earning before interest and taxes 21436000
Degree of Operating leverage = Contribution / EBIT
43840000 / 21436000
2.05
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