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A business has total sales of $54,135 and variable costs of $3,441. Fixed costs are $4,992.What is the business's degree of operating leverage? (DOL). Please enter your responses to 2 decimal places.

Question

A business has total sales of 54,135andvariablecostsof54,135 and variable costs of 3,441. Fixed costs are $4,992.What is the business's degree of operating leverage? (DOL). Please enter your responses to 2 decimal places.

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Solution

The degree of operating leverage (DOL) is calculated using the following formula:

DOL = 1 + (Fixed Costs / Contribution Margin)

The contribution margin is calculated by subtracting the variable costs from the total sales.

Step 1: Calculate the Contribution Margin Contribution Margin = Total Sales - Variable Costs Contribution Margin = 54,13554,135 - 3,441 = $50,694

Step 2: Calculate the Degree of Operating Leverage DOL = 1 + (Fixed Costs / Contribution Margin) DOL = 1 + (4,992/4,992 / 50,694) = 1.098

So, the business's degree of operating leverage is 1.10 (rounded to two decimal places).

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