Alpha Corporation reported the following data for its most recent year: sales, $630,000; variable expenses, $280,000; and fixed expenses, $280,000. The company's degree of operating leverage is closest to:

Alpha Corporation reported the following data for its most recent year: sales, $630,000; variable expenses, $280,000; and fixed expenses, $280,000. The company's degree of operating leverage is closest to:

Multiple Choice

• 5.00

  Correct
• 1.00
• 1.80
• 9.00

Explanation

Contribution margin = Sales – Variable expenses
= $630,000 – $280,000 = $350,000

Profit = Contribution margin – Fixed expenses
= $350,000 – $280,000 = $70,000

Degree of operating leverage = Contribution margin ÷ Net operating income
= $350,000 ÷ $70,000 = 5.00