Morse Company reports total contribution margin of $68,640 and pretax net income of $13,200 for the current month. The degree of operating leverage is:

How much a company's operating income alters in reaction to a change in sales is measured by the level of operating leverage.
Analysts can assess the effect of any change in sales on business earnings using the DOL ratio.
Due to the high percentage of fixed expenditures in an organization with high operating leverage, a significant increase in sales may result in outsized changes in profitability.

[tex]\frac{FC}{TC} = \frac{FC}{FC+VC}[/tex]

Where FC is a fixed cost, TC is the total cost and VC is a variable cost.

Contribution margin is $68,640 and pretax net income is $13,200.

So, applying the values in the formula we will get:

[tex]\frac{68,640}{13,200+68,640}[/tex]

[tex]0.83[/tex]

Therefore, the degree of operating leverage is [tex]0.83[/tex].

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