Calculating Degree of Operating Leverage for Ace Manufacturing

Ace Manufacturing, a company that produces electronic components, operates with a certain cost structure that significantly influences its profitability. The company has fixed costs of $200,000 and variable costs of $10 per unit. Last year, Ace produced and sold 30,000 units at a price of $15 per unit. Calculate the degree of operating leverage (DOL) at the sales level of 30,000 units.

To assist in your calculations, remember that the degree of operating leverage can be defined as the percentage change in EBIT (Earnings Before Interest and Taxes) resulting from a percentage change in sales volume. The formula for DOL at a specific level of output can be expressed as:

DOL = (Quantity * (Price - Variable Cost)) / (Quantity * (Price - Variable Cost) - Fixed Costs)