Go to Yahoo Finance (ca.finance.yahoo. com).
a. Can you guess Dell’s incremental cost for producing one computer? You probably have that amount in your wallet or purse! Let’s estimate the sales break-even point and degree of operating leverage for Dell Computer (DELL). Go to the annual income statement. With reference to Table 1 0.4, treating S&GA, research and development (R&D), and depreciation expense as our proxy for fixed costs, and costs of goods sold as variable costs, estimate the break-even level of sales for Dell for the last year (annual).
b. Estimate Dell’s degree of operating leverage (DOL) by calculating the percentage change in operating profits compared to the previous year and dividing that by the percentage change in sales. How does that compare to the result you would obtain for operating leverage using the formula DOL = 1 + fixed costs/profits? Why is there a difference when using these two approaches?
