Purchase Solution

Degree of Operating Leverage

Not what you're looking for?

Ask Custom Question

13An (Operating leverage) In light of a sales agreement that NVW just signed with a national chain of health food restaurants, NVW CFO, Jackie Cheng, is estimating that NVWâ??s sales in the next year will be 50,000 bottles at $30 per bottle. If the variable costs are expected to be 70% of sales, what is NVWâ??s expected degree of operating leverage?

This is what I have so far:

Item current sales Level Forecast Sales Level, t+1
Sales 1,200,000 100% 1,500,000 100%
Less: total variable costs 840,000 70 1,050,000 70%
Revenue before fixed costs 360,000 30% 450,000 30%
Less: total fixed costs 360,000 360,000
EBIT 0 90,000
Increase of sales = 300,000

Purchase this Solution

Solution Summary

The solution computes degree of operating leverage.

Solution Preview

Formula: Degree of Operating Leverage (DOL) = Total Contribution / Operating Income.

Note: At breakeven point the DOL is infinity because operating ...

Purchase this Solution


Free BrainMass Quizzes
Basics of corporate finance

These questions will test you on your knowledge of finance.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Lean your Process

This quiz will help you understand the basic concepts of Lean.