Morse Company reports total contribution margin of $48,000 and pretax net income of $12,000 for the current month. The degree of operating leverage is: Multiple Choice 4.0 0.25 1.25 2.5 250%

The correct answer is A

Explanation:

DOL stands for Degree of operating leverage, which is a measure that is used to determine how the operating income of the company changes after the change in percentage in its sales.

The formula for computing the degree of operating leverage is as follows:

Degree of operating leverage = Contribution margin / Pre-tax net income

where

Contribution margin is $48,000

Pre - tax net income is $12,000

Putting the values above:

Degree of operating leverage = $48,000 / $12,000

Degree of operating leverage = 4.0