Compute the degree of operating leverage for each firm

Reference no: EM131407762

Open Door Manufacturing (ODM) and Closed Door Industries (CWI) have identical operating cost structures. Both firms incur a fixed operating cost equal to $420,000, their variable cost ratio is 80 percent of the unit selling price, and they sell their products for $1,400 each. ODM normally sells 2,000 units per year, whereas CWI normally sells 2,500 units each year.

(a) Compute the operating breakeven point.

(b) Compute the degree of operating leverage (DOL) for each firm at their normal sales levels, and show that ODM is operating closer to the operating breakeven point than CWI.

Reference no: EM131407762

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