Answer
The degree of operating leverage = Contribution margin / Net operating income = 14,000 $\div$ 2,000 = 7
Work Step by Step
Contribution margin = Total sales - Variable expenses = 20,000 - 6,000 = 14,000 (dollars)
Net operating income = Contribution margin - Fixed expenses = 14,000 - 12,000 = 2,000 (dollars)
The degree of operating leverage = Contribution margin / Net operating income = 14,000 $\div$ 2,000 = 7
This degree of operating leverage shows that the Oslo Company’s net operating income grows seven times as fast as its sales.
