should you compute the DOL of moving from a production level of 20,000 units to a...

should you compute the DOL of moving from a production level of 20,000 units to a production level of 40,000 units?

Expert Solution

Degree of operating leverage is calculated in order to measure the sensitivity of operating income in response to the sales of the company.

In this case, the production level of the company is increasing from 20000 units to 40,000 units and it will be reflected in the overall measurement of change in the variable cost as there may be additional variable cost which may be incurred upon production of additional units which are not changing according to the proportion of units so it will be the need of the organisation to compute the degree of operating leverage when it is increasing the production level.

YES, degree of operating leverage should be calculated when moving from a production level of 20000 units to 40,000 units.

jeff jeffy answered 2 years ago

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