Olivetti Corporation has fixed operating costs of €850,000, variable costs of €350 per unit of personal computers (PC) produced, and a selling price of €550 per unit.

a. Calculate the operating breakeven point in units of PC produced.

b. Compute the degree of operating leverage (DOL) using the following unit sales as a base: 3,500, 4,000, 4,500, and 5,000. Use the formula given in the text.

c. Graph the DOL figures that you computed in part b (on the y-axis) against base sales levels (on the x-axis).

d. Compute the DOL at 4,250 units, and add this point to your graph.

e. What principle do your graph and figures illustrate?