Calculate The Degree Of Operating Leverage Given The Following Information
Your answer should be rounded to two decimal places for this problem specifically calculate the difference between the sales and the operating income for each of the given years.
Calculate the degree of operating leverage given the following information. Revenue is 800 000 total variable costs equals 400 000 interest expense is 80 000 and degree of operating leverage is 2 5. The degree of operating leverage dol may be computed in two ways. Operating leverage is a financial efficiency ratio used to measure what percentage of total costs are made up of fixed costs and variable costs in an effort to calculate how well a company uses its fixed costs to generate profits.
Dol contribution margin. And operating income of 16 000 for year 2. Variable costs of 15 000.
The following information pertains to last week s operations of xyz company. Calculate degree of operating leverage for company b. The degree of operating leverage is a measure of the change in a company s operating income after a percentage change in its sales.
From the above statements the dol reveals that if there is a variation in sales by 1 there is a corresponding variation in ebit by 2 4 2 14. The degree of operating leverage dol is a leverage ratio that summarizes the effect a particular amount of operating leverage has on a company s earnings. If fixed costs are higher in proportion to variable costs a company will generate a high operating leverage ratio and the firm will generate a larger profit from.
The overall cost structure of the company is such that the fixed cost is 100 000 while the variable cost is 25 per piece. Operating leverage formula example 2 let us now take the example of samsung electronics co. Here s how to calculate it.
In order to illustrate the concept of operating leverage for a real life company. Variable costs of 13 000. Operating income is the same as ebit earnings before interest and taxes.
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