Olympia Company’s variable expenses are 60% of sales. At a $600,000 sales level, the degree of operating leverage is
4. The company's chief executive officer has decided to purchase and install a new automated assembly line that will
increase the company's fixed expenses by 80% but will reduce variable expenses per unit of product by 40%.
Assuming that the sales level remains the same and the change will not affect the sales price, determine the new
degree of operating leverage after the new assembly is installed:

My work : First, I am confused because they are saying per unit but never give unit sales, nonetheless I did DOL = CM/NOI and got NOI = 60,000 but after calculations got DOL of 3.45 which does not match the answer of 6.40

Please show help with steps,

Thanks

Operating leverage is the ratio of fixed cost to variable cost

variable costs = 600000*.6 = 360000 fixed costs = 360000/4 = 90000 profit 150000

the new arrangement

fixed costs 90000*1.8 = 162,000 variable costs 3600000*.6 = 216,000 profit 222,000

the leverage becomes 216000/162000 = 1.333

This is as much an exercise in logic as it mathematics

DOL = %change in EBIT over the %change in sales. One part of that equation is a 0. What happens when you divide by zero? Whatever is on top line becomes the answer. Do you have sufficient information to determine EBIT? Movement in profit 222000/150000 =1.48 However that number includes fixed costs and we don't know the makeup of those costs

you were asked to determine the leverage