The accounting manager of Gateway Inns has noted that every time the inn's average occupancy rate increases by 3.3 percent, the operating cash flow increases by 4.6 percent. What is the degree of operating leverage if the contribution margin per unit is $47?

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22 December, 15:05

The accounting manager of Gateway Inns has noted that every time the inn's average occupancy rate increases by 3.3 percent, the operating cash flow increases by 4.6 percent. What is the degree of operating leverage if the contribution margin per unit is $47?

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Francis Roman · Answer 1

Answer: 26.15

Explanation: The degree of operating leverage is calculated as the percentage change in operating income in relation to a percentage change in sales.

Thus the degree of operating leverage of Gateway inn is calculated thus:

DOL = Cont Margin/Operating income

DOL = 47 / (4.6-3.3)

DOL = 47/1.3

DOL = 26.15