Operating Leverage Analysis in XYZ Corporation

Very Hard Measures Of Leverage Operating Leverage

XYZ Corporation has reported a fixed operating cost of $400,000 and a contribution margin of $15 per unit sold. In the current fiscal year, they expect to sell 30,000 units. Calculate the degree of operating leverage (DOL) at the current level of sales and determine how a 10% increase in sales volume would impact operating income. Which of the following statements regarding operating leverage and its effect on operating income is correct?

The DOL is 2.0, and operating income will increase by 20%.

The DOL is 1.5, and operating income will increase by 15%.

The DOL is 3.0, and operating income will increase by 30%.

Hint

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