Degree of Operating Leverage

Essay

Degree of Operating Leverage. Heat Tamers, Inc., of Bend, Oregon produces special heat-resistant boots used primarily by firefighters, smoke-jumpers and steelworkers. It is contemplating an expansion into the heat resistant leather market charging a price of $150 per pair of boots. The production of each pair of boots would require $60 in materials, and 1.5 hours of labor at the rate of $20 per hour. Energy, supervisory and other variable overhead costs would amount to $25 per unit. The accounting department has derived an allocated fixed overhead charge of $30 per pair of boots (at a projected volume of 280,000 pairs) to account for the expected increase in fixed costs.
A. What is Heat Tamers' breakeven sales volume (in pairs) for heat-resistant boots?
B. Calculate the degree of operating leverage at a projected volume of 280,000 units and explain what the DOL means.