7778
Total Contribution = unit contribution x sales= $5 x $25,000= $125,000
Operating income= Total Contribution -- Fixed Costs= $125,000= $80,000 = $45,000
DOL at 25,000 bags = $125,000/$45,000=2.7778
Why does the degree of operating leverage change as the quantity sold increases?
The Degree of operating leverage is a unit of measure on the return on fixed assets. The degree represents the ratio between a change in profits and a change in revenue. A higher ratio is a sign of increased variability in revenue and therefore higher risk. Higher ratios usually occur when the amount of units sold are closer to the break-even point and usually decreases as the amount of units sold increases. This phenomenon is because fixed costs are decreasing in relative importance and variable costs are increasing in relative...
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